No Way to Profit

 

Markets inch Higher

 

 

• IBM's CEO walked through some napkin math on data centers— and said that there's "no way" to turn a profit at current costs.
• "$8 trillion of CapEx means you need roughly $800 billion of profit just to pay for the interest," Arvind Krishna told "Decoder."
• Krishna was skeptical of that current tech would reach AGI, putting the likelihood between 0-1%.

Yahoo Finance This Week

Different eras have different glamour stocks. In the 1960s, it was IBM. As firms jockeyed to enter the personal computer market, IBM awarded its software contract to a start-up run by a guy named Bill Gates. At the time, Gates did not even have a software program. He bought one from Seattle Computing and that became MS DOS. Microsoft is now worth far more than IBM.  The reason is that IBM bet on the hardware, as that is how they achieved market leadership then.  Fast forward to today.

IBM’s CEO leads others with the lead-off quote in today’s column. Others have expressed doubts that these outsized bets will ever pay off.  Krishna is saying that an investment of 8,000 billion ( 8 trillion) would take one tenth of that to pay the interest alone. And he is right. Still the market is bidding up tech stocks.

A professor friends who works in the non-profit area made an interesting observation. He commented that the stock market has separated from the economy, which has weakened. All this reminds one of th edot.com mania which peaked in March 2000. Everything would be on-line, good-bye brick and mortar. It has not worked out quite that way.

Last week we commented that the trend was up. The market did not peak last Friday and inches higher still. At this point that is all one can say.

One market is working out as we expected-the bond market. We suggested that yes the FED can set the overnight rate, but that is all. The markets set the ten-year Treasury rate, which tracks and predicts where mortgage rates are headed. Today rates have risen to 4.13%. It appears that rates are breaking out of a sideways pattern that has existed all of November and into this month. Also this week fund managers doubted that Kevin Hassett could convince the entire FED to further lower rates. Even if he does, the amarkets have their own mind. Eventually this will be a negative for further stock market gains. The current dividend yield on the SPX is less than 1.5%. Treasury bills yielding over 4% dwarf that yield.

Crude oil remains range-bound trading just under. $60. One of our picks, Transocean RIG, is rallying off a very low 30% price to book value.