Mag Seven Goes Bafooey

One of the most puzzling features of the 21st century is the almost total failure of its new technology… along with astonishing prices for the companies that produce it. Last year, the Visual Capitalist reported that the Magnificent Seven were worth nearly $16 trillion:

Since 2012, the first year all seven companies were public, the Magnificent Seven has grown 13.5 times larger. Nvidia has seen the highest relative growth, with its market cap jumping 360 times larger over the same time frame. Nvidia’s size is especially impressive when you compare its market cap to other chipmakers.

There is only so much ‘value’ or real wealth available in the world – cars, art, wool socks, beef ravioli. A man with a stock worth $100 has a claim on one hundred dollars’ worth of it. If his stock goes to $1,000…he can claim 10 times as much.

The Ford Motor company was valuable from the beginning — there were thousands of Ford trucks and autos to prove it. The company rose in value as its own output increased the nation’s real wealth. .

But what about those Magnificent Seven tech stocks? They are now worth $13 trillion more than in 2012. Where’s the beef?

The industrial age made us all much better off. No question about it.

The common chainsaw provides the easiest demonstration. It is a simple machine, little changed in the last half a century. We had one in the 1960s, which was already at least ten years old. It was big, heavy and noisy… but it did the job. Today, they are lighter and more reliable.

A small internal combustion engine takes gasoline (usually mixed with oil… in 2-stroke engines) and cranks a shaft that turns a sharpened chain. With it, in one day you can cut as much firewood as would have taken weeks or even months before.

The amount of fuel used is trivial. The pile of wood is impressive.

Firewood is a real thing… with real value… it warms our houses, greatly improving the quality of life. The chainsaw’s value can be measured by the cords of wood it cuts. More firewood = more value.

Almost everything that now creates our quality of life — automobiles, houses, food, clothing — relies on Industrial Age innovations.

Each one took a combination of labor (including the invention… design… and development… as well as actual manufacturing) and capital. It took a lot of money to build the factories… and the power grid, delivery systems, railroads and highways that brought the chainsaws into the local hardware stores. Even the movies we watch on our computer screens still require huge amounts of real things — fuel, time, props, transportation, lodging — to make.

And for each of these things, there is output to justify the capital value. More cars. More pants. More films.

Then came the Internet… and the communications revolution, largely built out in the 1990s. Widely discussed was the promise that ubiquitous information would reduce the need for capital. Rather than trial and error… hit or miss… entrepreneurs would have the world’s knowledge at their fingertips and could avoid dead ends and mistakes.

Capitalists would no longer need to take the risk of financing new projects, since the risk would be largely eliminated by knowledge. Growth rates would pick up. And the knowledge peddlers would be the new store of value.

That didn’t happen. Growth rates slowed. Most of the dot.coms disappeared. It turned out, they weren’t really offering ‘knowledge,’ but just information, and much of it was false, misleading, or unnecessary. In other words, it was a waste of time – squandering our most precious asset.

The dot.coms blew up 25 years ago. How much of the new tech, developed since then is a genuine improvement? How much is just nuisance?

Checking in to our nifty ‘health portal’ at Johns Hopkins hospital, for example, we were told that our password was incorrect. Then giving our name and birthday, the machine told us that our information was ‘invalid,’ as if it knew when we were born better than we did. But try to get a straight answer from an AI-enhanced communications system!

Our home heating system wouldn’t work. The Industrial Age part was still functioning — plenty of fuel… plenty of spark. But the ‘electronics’ had gone bafooey. Same thing happened with one of our trucks. Engine, no problem. But an electronic control had tripped, immobilizing the truck until a technician finally figured out the problem.

Today, if you have a flat tire, can AI fix it? Not as far as we know. The most obvious and helpful new developments to come out of the Information Age are the many short videos that show you how to do non-electronic things, such as change a tire. They also make it easy to ‘find a garage near you’ and make a restaurant reservation for the evening.

And so, on this cold, wintry day, warmed by the wood burning in our own fireplace, we pace the hardwood floor and fake Aubusson rug. We lean back in our plastic office chair… we tap our fingers on the mahogany desk… take a sip of hot tea from a ceramic cup, stare at the plaster molding around the ceiling…

And wonder — are the techs really worth as much as they think they are?

Where is that $13 trillion pile of wood?

Stay tuned…

Regards,

Bill Bonner

Since 2012, the first year all seven companies were public, the Magnificent Seven has grown 13.5 times larger. Nvidia has seen the highest relative growth, with its market cap jumping 360 times larger over the same time frame. Nvidia’s size is especially impressive when you compare its market cap to other chipmakers.

But what about those Magnificent Seven tech stocks? They are now worth $13 trillion more than in 2012. Where’s the beef?

The industrial age made us all much better off. No question about it.

The amount of fuel used is trivial. The pile of wood is impressive.

Firewood is a real thing… with real value… it warms our houses, greatly improving the quality of life. The chainsaw’s value can be measured by the cords of wood it cuts. More firewood = more value.

Almost everything that now creates our quality of life — automobiles, houses, food, clothing — relies on Industrial Age innovations.

And for each of these things, there is output to justify the capital value. More cars. More pants. More films.

The dot.coms blew up 25 years ago. How much of the new tech, developed since then is a genuine improvement? How much is just nuisance?

And wonder — are the techs really worth as much as they think they are?

Where is that $13 trillion pile of wood?

Stay tuned…

Regards,

Bill Bonner

The “No Kings” crowd might one day discover that the tyranny they fear doesn’t wear a crown. It wears a smile, signs checks, and calls itself “the common good.”

And like all monarchs in the end, it will demand obedience — long after the cheering stops.

If history rhymes, as it seems to, we’re somewhere between the late 1930s and the late Roman Republic. The crowds are restless, the debt insatiable, the elites insulated, and the reformers convinced they can vote their way to virtue. The yachts are still in the harbor; the customers are still swimming.

“No Kings”? Fine. But remember: every time the crowd dethrones a monarch, it tends to crown a bureaucracy. And bureaucracies, unlike kings, never die.

Wall Street will always sell tickets to the parade—radio in 1929, dot-coms in 1999, GPUs in 2025. Some parades end in confetti; others in subpoenas. Schwed’s wisdom still stands: you don’t need to time the last note, just keep your seat close to the exit.

If the boom continues, your portfolio participates. If it falters, your ballast buys you time—and maybe your own modest “yacht,” which Schwed would remind you is simply a sturdy rowboat, with good oars and a sound hull.

Wall Street traders have a term for this phase: the wall of worry. As long as investors get fearful enough, the market top isn’t in.

At the top, investors will go all-in – in what’s known as the “blow of top”, like they did with dotcom stocks in 1999, or as many did with SPAC companies in 2021.

We haven’t quite gotten to the “this time is different” mentality that causes investors to throw on the blinders – yet.

Regardless of anyone’s personal opinion on Trump, it’s clear that the international community is translating his “Putting America First” agenda as something more like “Every Man for Himself.” That could have a profound impact down the line, not just for our future trade prospects, but for the health of the economy and the U.S. dollar at large (which is still the world’s dominant reserve currency, for now).

At the same time, this is all very bullish for gold, as central banks are likely to continue buying for years to come. In this kind of situation, gold hitting $4,300 and continuing to rise higher was a foregone conclusion, and it’s clear that Trump’s agenda is locked in and unlikely to change.