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2024-11-28 05:46 by Karl Denninger
in Editorial , 542 references
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I am making my way to Knoxville for the annual Turkey Trot after which I shall engage in the debauchery of good food and better Scotch.

Some of you might remember my usual annual Thanksgiving missive, in which I put forward facts that many do not know, and which is only taught in schools where actual history is the subject of, well, history class.

Studying history is an important -- indeed critical -- part of the human experience.  We have long-wave cycles that approximate one human lifetime, or two generations, in large part because we do not pay attention to history or adulterate it to suit whatever preference might be going around society at a given time.  This is a serious mistake because many times what we do as humans has undesirable -- or even disastrous -- consequences.  If we memorialize this in some indelible form and then make sure others have access to it, and the next generations seek it out and consume it, there is a decent chance of avoiding having the same bad thing happen twice.

Of course there are also good things that have happened and learning from them is desirable as well.  But it is the disasters we should learn about and understand first if time is limited, simply because a pleasure you miss may be a disappointment, but a disaster averted may well be the difference between life and death.

And thus it was with Plymouth Colony.  The pilgrims had hoped to take two ships but complications meant only one actually went.  Aboard were 101 passengers; of them 41 signed The Mayflower Compact.  They voyage had originally intended to reach Virginia Colony but wound up at Cape Cod, battered by storms.

The Wikipedia page is rather sparse on some of the details, as are many other Internet resources.  But William Bradford's diary, the Governor, was not sparse in detail at all.  The original bargain in the Compact was that the land was all to be in trust of the Colony, owned in common, and every person was accorded a share of common production of the colony.  All were expected to participate in improving and producing upon it.  If this sounds like socialism that's because it is; one is entitled merely by being, rather than only by doing, and the two are not coupled together in that if one produces less -- or nothing at all -- they are still entitled to their "fair share."

As it turns out men did not wish to work to pay for another man's family when the other refused or was slower, whether intentionally or not, or simply had more mouths in his home than the other.  The outcome was that those who were most-industrious and capable had no reason to excel as they received no additional reward for it.  Fully half of the colonists died during the first winter from starvation and disease as a direct result of flagging productivity and the inability of the colony to feed itself.

Facing near-certain extinction if another year went by under this scheme Bradford tore up that deal and instead accorded each remaining colonist an equal slice of the land to do with as they wished, and deemed that the production from said land and each Colonist's effort was their property rather than being owned collectively by the whole.  Productivity wildly increased, the colony stabilized and grew, the colonists were rapidly able to retire their debt to the merchants across the ocean who had financed the crossing and soon attracted more immigrants forming a great migration from England.

In fact the colonists became so prosperous that they had extra food in the late fall which they shared with those they were trading with in a large feast, mostly native Americans, as doing so would in no way endanger their survival where to have done so previously would have sealed their extinction.

Indeed of those at the feast the majority were native Americans; the best estimate is around 90 of them, and since more than half of the 102 who landed at Plymouth perished in the first winter its clear that the Pilgrims were rather-roundly outnumbered.

But they were not saved by that feast, they in fact threw it themselves, with Edward Winslow, one of the colonists, recording that they were "quite excited" to be out hunting geese and docks for said dinner and he bragged that the bay was full of lobster, so it is likely they were on the menu as well.

History is not an exact science, and of course many people record the same event and in doing so often have differences of interpretation.  Nonetheless it is a fact that the Pilgrims originally constructed a socialist society believing it would be a superior form of social and economic organization, it killed half of them and threatened to kill the rest, they decided to reject that path and by adopting instead the principles of capitalism and private property rights rescued themselves from all-but-certain extinction -- and instead found and maintained prosperity.

America exists, all the way back to 150ish years before the Declaration of Independence, in no small part as a result of that decision and that is why today is called "Thanksgiving."

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2024-11-20 07:00 by Karl Denninger
in Market Musings , 288 references
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SMCI, specifically, Supermicro.

I know this firm's products quite well and have used them personally since the mid 2000s.  They are a motherboard manufacturer and have some very nice kit with features that make them particularly suitable for server machines (not so much for desktop computers simply because the extra cost doesn't bring you much except in very-specific circumstances.)

Specifically, most have "out of band" management so you can not only do things like toggle the power, check fan and temperature status, reset the box and such but in addition they have a "virtual console" capability using what is called "IPMI"  over a dedicated network interface (preferred for security reasons since that interface never leaves your data center "raw") and their boards typically support ECC memory, which is very important in larger server configurations with processors that also support it (specifically the Intel Xeon series) since random memory errors (e.g. cosmic ray hits, which can happen although they're very rare) could otherwise cause either undetected data corruption or even crashes.

But in the last couple of years they've been on a tear because they uttered the words "AI" and were buying quite a lot of Nvidia chips.

Just recently their auditor quit with a rather-amusing letter to the SEC (which of course is public) and drew a number of snickers, implying that they didn't like what they saw in the firm's financials.  The stock crashed, and is now trading around $30 (after trading as low as $17) -- off a fairly recent high of around $140!

This has brought many people out thinking its a screaming buy -- provided, of course, the books are not entirely-fraudulent.

As recently as mid 2022 the stock was trading at a split-adjusted $4.00/share!

So exactly what has changed in the company's forward prospects selling server boards that leads someone to believe that it is was ever worth thirty times what it was worth in 2022 (note -- this was not a "startup" that just started making money!) and why is it worth seven times what it was in 2022 right now?

Again -- this is a company that makes motherboards, a commodity product that has decent operating margins and it is an established player in that space.  Note that it was a strong player in the space the entire time "cloud" was taking over the world and while they made a nice amount of money and have excellent products how did the market turn around and revalue them up by thirty TIMES in the first place when their essential product is a commodity item in the computing space?

Does anyone really think we will be putting thirty times as many servers in datacenters over the next few years?

Just contemplate that in the market as a whole folks -- look at basically everything and you will find this sort of pricing in what equities go for these days.  How is that defensible?

I argue it is not.

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2024-11-17 13:00 by Karl Denninger
in Company Specific , 382 references
[Comments enabled]  

The Tyson fight, that is -- but not just on the fight.

I'll leave most of the analysis of the fight itself to those who follow boxing more-closely, but will note that Jake Paul allegedly said that he "was nice" to Tyson (more or less), which is silly.  You were paid to knock him out if you could, and he was paid to knock you out if he could -- or at least that's what the viewing public was sold.  If it wasn't what you were going to do then like so much else in today's society the watching public was sold a bill of goods.  I hope you and boxing in general pay for that in the future (in the form of a destroyed revenue stream.)

I'll focus my attention instead on the production and distribution which was, to put it mildly, horrible.

We'll start with audio.  I've done this for people before.  Its a bit of an art, as is (of course) camera operation, direction and video mixing.  To say that it was done "poorly" would be an insult to those who do it poorly.  It was horrible; the balance was wildly off between background and announcer volume, EQ was bad, micing (whether selection or placement on the announcers) was hideous, mixing was worse and the result was often unintelligible garbage.  A middle school play would sound better.

Video production wasn't much better.  I've done that too.  Camera angle selection, the jump cuts, just plain poor.  Shooting live sports is again an art, but one that plenty of people are pretty good at.  This wasn't.  Critical angles were missed during punches that shouldn't have been.

Production stunk like skunk, to be precise in four words, and that's leaving off the trashy stuff everyone expects in so-called "professional" boxing (pre-bout preening, grand entrances, etc.)  That sort of looked like "professional" wrestling..... I thought one was a sport, the other entertainment?  Maybe today, not so much.

When it came to content delivery, however, it was clear that Netflix's "production" lack of acumen was actually the high point of their competence.  If you recall many years ago I went after them in spades during the so-called "net neutrality" wars because their strategy (and the foundation of their "earnings" during those times) was to force last-mile carriers to eat their long-haul bandwidth requirements.  They ultimately lost that war despite Obama's Net-Neut position and have stuck racks of disks and servers all over the place very close to local distribution centers, such as at the head end offices of cable companies.  That's as it should be; there's no "peering" argument to be had for a service like Netflix because the other guy gets no value in the other direction, which is the entire premise of no-charge peering -- you get value from my customers, and I get value from yours; the differential is small enough that its not worth trying to figure it out and generate a bill in either direction.

But when you want to do live events that doesn't work.  At all.  Now you have to deliver the entire content stream to everyone watching all at once from wherever it originates to every single consumer.  The cable company still has their requirement but yours is now not to send down the new movie at 2:00 AM when everyone is sleeping -- nope, you have to send it right now to each of those head ends and the capacity has to be there to do it.

Well, it wasn't.  Whether that's because Netflix can't do math or they have deliberately not purchased it previously (because you don't need it when the content is on hundreds or thousands of servers in said cable headends) doesn't matter.  It wasn't there and that was obvious as the pixelation and then, for a huge number of people, complete failure to deliver the streams occurred -- and what made it worse is that while you could exit your Netflix app and restart, and usually get it back, automated reconnection by their app failed basically every time so if you didn't manually exit and restart the app you eventually got either a spinning "loading" thing that never moved or just a black screen -- or an error saying there was a "connection problem" (and implying it was on your end, which it wasn't.)  Worse, when you reconnected they were trying to cheat those bandwidth requirements by resuming from where you lost coherence (presumably they were locally caching in their racks at carrier head-end locations to do so) which meant you were now minutes behind the actual action and if you scrolled back to "live" you got hosed again immediately.

"Live" means live guys, not "well, you can watch from the start where we've cached it at your local cable company headend when we can't deliver what we told you we could."

I tried to switch to my phone from a Sony 4k player that I usually use for streaming and that was fruitless as well -- and it certainly wasn't my Internet link, which has enough capacity to handle 40 such streams at once and was working perfectly fine to everything else. 

Good thing I don't pay directly for this hot mess -- I get "basic" Netflix "free" because I'm a T-Mobile customer -- because if I had been paying for it that'd be the end of me as a paying subscriber.  Oh, its just one time people will say -- yeah, but guess what -- competence matters, this was a seriously promoted event that many people really did want to watch and, well, a huge percentage of them didn't, at least not usably.  In other words everyone, including Netflix, set a high bar themselves -- and failed.

I don't know if Netflix charged silly money for bars and other commercial establishments (as is common for various other things like MMA fights) but if they did the howling from them is going to be quite interesting, along with what I expect to be more than a few attempts to charge it back and, if resisted, I bet it draws lawsuits as well -- and should.

Netflix may be a perfectly-reasonable way watch shows and such "on demand" these days -- something I don't enjoy and thus have no reason to pay for -- but they clearly do not have the chops to handle live events whether in the production or content delivery side of the equation.

Period.

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2024-11-15 12:28 by Karl Denninger
in POTD , 109 references
 

 

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2024-11-14 07:00 by Karl Denninger
in Macro Factors , 284 references
[Comments enabled]  

Well well, here it is....

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent on a seasonally adjusted basis in October, the same increase as in each of the previous 3 months, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.6 percent before seasonal adjustment.

The index for shelter rose 0.4 percent in October, accounting for over half of the monthly all items increase. The food index also increased over the month, rising 0.2 percent as the food at home index increased 0.1 percent and the food away from home index rose 0.2 percent. The energy index was unchanged over the month, after declining 1.9 percent in September.

The index for all items less food and energy rose 0.3 percent in October, as it did in August and September. Indexes that increased in October include shelter, used cars and trucks, airline fares, medical care, and recreation. The indexes for apparel, communication, and household furnishings and operations were among those that decreased over the month.

The all items index rose 2.6 percent for the 12 months ending October, after rising 2.4 percent over the 12 months ending September. The all items less food and energy index rose 3.3 percent over the last 12 months. The energy index decreased 4.9 percent for the 12 months ending October. The food index increased 2.1 percent over the last year.

That bolded and particularly the bolded and underlined text is the important one, and is why I included the text of that entire section.

But for the energy index coming down core would be smoking hot, likely close to 4% or double the claimed "target" and within one percent of wage increases which in turn means that any idea that consumers can "earn" their way out of the inflation hole is fantasy-land nonsense.

Yet this premise is absolutely key to the idea that we can "keep" the sort of pricing that is in the marketplace (and thus the sort of stock and other asset prices) that are currently present.  On the number release the market decided 20 handles on the /ES futures must be added.

A caution: All the energy decrease was in gasoline and fuel oil (diesel, along with home heating use.)  Both natural gas and electricity were up on a 12 month basis, the latter more than the former, which strongly implies that policy decisions are largely responsible.  Electricity prices going up 4.5% on the year are a serious inflation risk as electrical power goes into literally everything -- its not just your light bill, it is also the light bill of every store, every warehouse, distribution terminal and manufacturing facility.  This is precisely the sort of "sticky" inflation influence that cannot be absorbed.

Oh, and car insurance?  Up 14% annualized.  You don't need to buy that (if you own a car), right?

CNBC is talking about inflation being "sticky": Yeah, that would be due to electricity costs among other mandatory spending such as health care and shelter.

PS: The PPI is now out as well and, well.... it is confirming this view with almost-exactly the lead time that I expected and worse, well, here's the quote:

Over 80 percent of the broad-based increase in October can be attributed to a 9.9-percent jump in the index for unprocessed energy materials.

Here it comes....

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