There’s an old Yiddish proverb, made famous by the lustful narrator of Philip Roth’s comic novel Portnoy’s Complaint: ‘When the putz stands up, sechel is in the ground.
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sechel → ’ → ground
‘Sechel’ means ‘common sense’, and ‘putz’, well... you can guess.
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you → mean → sense
The phrase came to my mind on Sunday night, when I read that Jensen Huang, the CEO of AI giant Nvidia, had been exposed having an affair with an alleged Chinese spy who, oddly enough, shared his surname.
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who → come → surname
Here was a man who had devoted his life to the company he founded aged 30 in 1993, building it from nothing to become at one point the most valuable in the world.
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he → devote → world
Today Nvidia’s dazzlingly sophisticated semi-conductors are used by practically every major tech firm, from Microsoft to OpenAI, Meta, Amazon and Tesla.
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conductors → use → OpenAI
And yet if you think this scandal is only really of interest to Huang, his shareholders (some of whom are now suing him over their losses) and perhaps a few panicking spies in the Pentagon, think again.
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some → think → Pentagon
The damning revelation has sent Nvidia’s shares into a tailspin – and I fear this could now unleash a contagion that infects the global financial system and impoverishes the futures of millions of people.
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that → send → people
When Nvidia’s share price hit its all-time high on October 6, its market capitalisation was $5.7trillion (yes, trillion).
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capitalisation → hit → October
Since then that figure has fallen to $4.2 trillion, and it’s down roughly 16 per cent over the past five days alone.
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it → fall → days
As news of Huang’s tawdry affair broke, the share price plunged by £200billion in a few hours.
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price → break → hours
If you think that sounds like small beer compared with the numbers I’ve just cited, remember that £200billion is equivalent to the total value of Shell, Britain’s wealthiest oil company.
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200billion → think → Shell
After news of the business executive's tawdry affair with the suspected 'Chinese spy' broke, Nvidia’s share price plunged by £200billion
Now investors across the globe are gradually coming to suspect that the scandal could prove to be what finally pops the bloated AI bubble that has inflated world markets for years.
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that → suspect → years
The International Monetary Fund and other global monitors have long been cautioning that the share prices of the so-called ‘Magnificent Seven’ companies that make up an outsize proportion of the U.S. market – Google owner Alphabet, Amazon, Apple, Tesla, Facebook owner Meta, Microsoft and Nvidia, with honourable mentions for AI giants Anthropic and OpenAI –
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that → caution → giants
A crash in the value of these stocks has begun – and it’s a very long way down.
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it → begin → stocks
The Nasdaq index of leading technology companies has almost tripled during the past three years alone, leading many financial analysts to warn that the paper value of the firms that comprise the index had become completely detached from their true value.
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that → lead → value
Lofty share prices make it easier for firms to take on huge, unsecured debts – and the Magnificent Seven have been filling their boots, to the tune of $3trillion.
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Seven → make → 3trillion
Again, to put that number in perspective, it represents fully 10 per cent of America’s entire GDP – and is not far short of Britain’s total economy.
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it → put → economy
This towering edifice of debt, which will have to be repaid one day and somehow, is far larger than the one investors were warning about in 2008, for example, when confidence in America’s sub-prime mortgage market collapsed overnight, bringing down the historic investment bank Lehman Brothers.
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confidence → have → bank
Readers will remember that that earthquake ultimately triggered a $700billion bail-out of Wall Street and a similar-sized rescue for British banks led by Gordon ‘We Saved the World’ Brown.
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We → remember → Brown
(A telling Freudian slip he made during Prime Minister’s Questions in December 2008.)
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he → make → December
Well, saved or not, Britain suffered a calamitous economic slump in the aftermath of these unprecedented bail-outs for the ‘too big to fail’ banking giants, whose bosses had ignored the critical capitalist concept of moral hazard and instead persuaded politicians to make taxpayers ultimately liable for the risks they themselves had chosen to take.
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they → save → risks
Just like the sub-prime mortgage crisis, I fear that the Nvidia scandal is precisely the kind of ‘black swan’ event that could herald a financial-market meltdown.
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that → fear → meltdown
The phrase comes from early European explorers to Australia, who had only ever known white swans until they saw the birds’ duskier cousins Down Under.
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they → come → cousins
Nowadays, the saying refers to any event that seems random and unpredictable – but carries huge consequences.
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that → refer → consequences
Markets have already undergone a hefty correction from their peak just over a month ago.
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Markets → undergo → peak
These precipitous drops have alarmed investors, many of whom now fear that the shiny AI stocks into which they have been pouring their money for years might not produce decent returns for a very long time to come.
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they → alarm → time
Painful
Nvidia’s semi-conductors are used by tech firms such as Tesla, Microsoft and OpenAI.
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conductors → use → Tesla
Tesla CEO Elon Musk and Jensen Huang at the launch of America.gov in September
Even before last week’s midterm elections in America, the Nasdaq had plunged 14 per cent from its all-time high.
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Nasdaq → plunge → high
Two concerns in particular have coalesced to spook investors.
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concerns → coalesce → investors
The first is that a new generation of powerful AI models wielded by bad actors could threaten the very stability of the world’s banking and payments systems.
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generation → wield → systems
The recent North Korean hack on the cryptocurrency exchange Binance, which saw $6 billion stolen in minutes, has been seen by some as a harbinger of things to come.
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billion → see → things
The second fear is that the collapse in share prices could end the massive, multi- trillion-dollar build-out of data centres across the United States: the enormous units, some larger than medium-sized towns, which house the huge, energy- intensive computer processors on which AI relies.
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AI → end → which
Many of the AI giants have also been lending vast sums of money to each other, leading Jennifer Harris, an economic scholar and a former official under President Biden, to warn last month: ‘The AI boom looks a lot like the housing bubble.’
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boom → lend → bubble
Anyone invested in a pension fund, or who saves via a stocks-and-shares Isa, should plan accordingly.
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who → invest → Isa
Many ordinary savers will now be looking at their accounts on Hargreaves Lansdown or AJ Bell with a sense of dread.
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savers → look → dread
For years, aside from the occasional blip, most will have got used to the idea that the only way is up for equities – especially when saved through a passive index or ‘tracker’ fund that follows the overall market.
Indeed, the last unlamented Chancellor Rachel Reeves was so convinced that this party would go on for ever, she even tried to force British pension funds to invest up to 10 per cent of their assets in unproven new technologies such as data centres, AI and certain private-equity funds, which now find themselves over-exposed to all this toxic Big Tech debt.
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themselves → use → debt
Well, the music has finally stopped.
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music → stop → ?
As the great American economist JK Galbraith observed, when ‘the bezzle’ – the fake, frothy wealth created by an unsustainable stock-market boom – finally unravels, it can bring down economies, jobs and even lives with it.
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it → observe → it
I fear we have reached one of those moments.
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we → fear → moments
The Aporia
