Buckle Up - Recession Is Coming Fast

Last edited Mon Jan 27, 2025, 11:36 PM - Edit history (1)

I've been watching the falling dominoes today as a recent large language model (LLM) out of China beat the top of the line OpenAI model was about 1/50th the investment (or, put another way, it cost in a year what OpenAI spends in a week on training). This model, called DeepSeek, was also released open-source, meaning that for a fairly minimal investment, anyone could set up a top of the line AI model, rather than having to use OpenAI's very expensive services.

Last week at Trump's inauguration, he was crowing about $500bn AI Initiative (Stargate) with the CEO and VC Tech Bros prancing around on the stage. In one day, the Chinese managed to show that the emperor has no clothes, has probably doomed openAI, and led to a staggering $600 BILLION dollar loss in market cap for nVidia. From where I sit, Stargate looks like it's dead in the water, and everyone from Elon Musk and Larry Ellison to Sam Altman are now looking at MAJOR losses in their portfolio that I don't think are coming back any time soon.

There is a certain amount of schadenfreude in all of this, but its bitter stuff, because I suspect that you're about to see the collapse of the tech sector stock market over the next few months as major investors and banks, already squeezed by overinvestment and anemic returns, are going to start laying off people left and right in order to free up enough money to keep their MacMansions from getting foreclosed.

In tech, we've been in a soft recession for a while now - here in Seattle, even before this debacle, Microsoft just announced another 6,000 layoffs, and other companies looked to be following suit. However, after today, I anticipate something I've been worried about for awhile, as margin calls hits investors in companies outside of tech that were nonetheless heavily vested in tech stocks. I've been more or less unemployed outside of writing a tech newsletter for a while now, and I think things are only going to get worse.

I'm not a financial person, just a tech analyst, but I would recommend that staying as liquid as possible right now is likely to be a real good idea, unless you have very deep pockets. The banks were selling off $3 Bn in X (nee Twitter) debt in the last few days, and I know that most of those same banks are also holding a lot of highly leveraged paper from other "HOT" tech bro pie in the sky investments, so contagion is a very real possibility.