What happened to Goldilocks?
While the Fed is worried about an overheating Economy, the Atlanta Fed is worried that the Economy has gotten much weaker this month – taking their GDP Nowcast down 0.9% for the month as Private Investment Growth dropped 1.1% and just you wait until they start scrapping those massive data centers, now that DeepSeek has shown how much money Tech has been wasting.
Nonetheless, SoftBank (who never make dumb investments ), is talking about giving $25Bn to OpenAI, which would make them OpenAI’s biggest investor – leap-frogging Microsoft’s $14Bn commitment to date (and most of that was use of MSFT’s data centers – not so much a cash investment).
Of course, SOME might say that SoftBank is simply attempting to spin investor opinion as their stock dropped 12% after DeepSeek’s announcement and SoftBank had already committed $15Bn to Project Stargate (sounds super-pretention now, doesn’t it?) on top of their $1.5Bn original investment in OpenAI.
DeepSeek’s $5.58M model development cost threatens the traditional AI investment thesis and the market fears that expensive AI infrastructure may not be necessary if companies can achieve similar results with fewer resources. ZoomInfo (a business data provider) found it could cut AI costs by two-thirds by replacing OpenAI’s model with DeepSeek’s R1 and pretty much every company that is currently licensing ChatGPT is, of course, testing the Open-Source model – which is NOT “from China” – IT’S JUST CODE!
Masayoshi Son, who is another one of those Oligarchs whose DNA can be found on Trump’s ass, is covering his own posterior in much the same way he threw good money after bad with his Vision Fund (lost $32Bn) and WeWork (lost $50Bn) so PLEASE – do not take SoftBank’s commitment as a sign that “every little thing will be alright” with Big AI.
See, people seem to forget what complete and utter bullshit all these projections can be. Masayoshi Son is very, very good at telling investors that next year will be magical and there is, indeed, a sucker born every minute and they do keep giving him money but, in the end, he is no better at predicting the future than Cathie Woods, whose ARK Fund is still not back to half of its 2021 highs – despite 60% run in the Nasdaq over that same time-frame.
Ark had $60Bn under management in 2021 and now it’s down to $6.7Bn yet Cathie Woods and Masayoshi are constantly on TV, uncritically hawking their wares and shaking hands with the Oligarch-in-Chief and steering US policy – even though they clearly are no more accurate than a coin flip in their investments!
I’m the smiling face on your TV
Oh, I’m the cult of personality
I tell you, one and one makes three
Oh, I’m the cult of personality” – Living Color
Speaking of our Cult Leaders, Elon Musk had a rough night as Tesla missed both top and bottom line expectations with Q4 revenue coming in at $25.7Bn vs $27.2Bn expected and earnings of $0.73 per share vs $0.77 expected. The stock initially fell but recovered to close up 4% in after-hours trading as investors focused on Musk’s PROMISES for the future (notice a pattern?).
Automotive revenue dropped 8% year-over-year, with gross margins falling to 16.3%. Operating income plunged 23% to $1.6Bn as the company cited increased AI and R&D spending along with lower average selling prices across their vehicle lineup. During the earnings call, Musk painted an optimistic picture for 2025, PROMISING:
- A new more affordable model starting production in early 2025
- Unsupervised Full Self-Driving launching in Austin by June (pedestrians beware!)
- The Cybercab robotaxi on track for 2026 production
The bright spot was Tesla’s energy division, which saw revenue surge 113% to $3.1Bn. However, the company warned that Model Y production would temporarily halt across factories during the transition to a new version, impacting near-term margins. Like his friend Masayoshi Son, Musk continues to sell the future while the present disappoints.
The company’s first-ever annual delivery decline in 2024 suggests mounting competitive pressures, yet the stock trades on promises of autonomous Robotaxis and affordable EVs that always seem to be just around the corner – yet never actually delivered. Once again, the never-ending supply of suckers works in Musk’s favor and sucking up to the President was a stroke of genius that boosted Musk’s wealth by more than $100Bn since last year – after spending less than $270M to get Trump elected!
Now Elon Musk gets to decide who gets Trillions of Dollars worth of Government contracts and his Space X just so happens to be a Government Contractor – this is how an Oligarchy works, folks!
Don’t worry, Russia has had a thriving Oligarchy since 1990 as it developed under Gobachev (Russia’s Biden), taking advantage of loopholes under Perestroika and they, like our American Oligarchs, put their own boy in power to run the country and now, 35 long years later, you can’t separate the Oligarchy from the Government – they are one in the same and dissenters get murdered in the streets – and in Russia too!
8:30 Update: As predicted by the Atlanta Fed, Q4 GDP came in at 2.3%, miles below the 2.7% predicted by Leading Economorons and Unemployment, which we usually don’t care about, FELL by 42,000 (4.1%) and we’ll see if that holds up in the Non-Farm Payroll Report next week but it indicates that, despite the slowing economy, there is still a lot of wage pressure (still 10% more job openings than unemployed people) and that’s a strong indication that Q1 Corporate Margins are slipping.
Breaking it down, Consumer Spending is moderating (and we get Personal Income and Spending tomorrow along with PCE Prices and the Employment Cost Index) and we already knew that Inventories were declining and just wait until Trump’s slowdown in Government Spending hits us in Q1 – look out below! Oh yes, and tariffs! Way to chop up Goldilocks and feed her to the bears Mr. T…
Corporate Margins Impact
-
- Profit margins expected to face pressure in Q1 2025 due to:
- Persistent wage growth despite economic slowdown
- Cooling consumer spending
- Rising input costs
- Corporate earnings growth projected at 14% for 2025, but this may need revision 3
- Profit margins expected to face pressure in Q1 2025 due to:
This data suggests we’re seeing the “higher for longer” rate environment impact growth while the labor market remains surprisingly resilient, creating a challenging environment for corporate profitability.
Be careful out there…