Crackpots #17: Dreams and Nightmares (Patreon)

Hello everyone, it's Liz. Let's rock.

Last week, JP Morgan Chase issued an investment note on Tesla detailing its claim that the company is significantly overvalued and due for a correction. "The move higher in Tesla shares bore no relation whatsoever to the company's financial performance in the quarter just completed or to its outlook for growth in the coming year," the JPMC analyst wrote. "This fits into a broader pattern for Tesla shares — the company's financial performance and Bloomberg consensus for revenue, margin, earnings and cash flow all keep coming down, but analyst price targets and the company's share price keep going up." It's hard not to laugh. JPMC, to their credit, has been bearish on Tesla for years. But what good is that? They may be right on the fundamentals, but they've been wrong on the timing of the call. Being early is just another way of being wrong and if you don't believe me, just look at how the bodies pile up after a Tesla gamma squeeze. We detailed the ways in which the company has engineered its own self-reinforcing valuation loop back in 2021, part of which relies on now-common practices like accounting magic, populist social media mobilization, marketeering vaporware, various shades of financial crime and so on. The cherry on this year's top: if it wasn't for the price of Bitcoin, Tesla's net income would be down 78% year over year. The $600M mark-to-market gain on their book is covering a black hole where profit should be on the balance sheet.

Does this matter? I don't know. I have to believe that at some point fundamentals — literally the substance of material reality — will intervene, that the rubber will meet the road, but I'm also increasingly worried about when and how that happens given how far it would require us to fall. I don't know how to play it. Yes, yes the market can remain irrational longer than you can remain solvent, we know, but the sheer amount of ponzi and grift and bullshit that the American system is built on overwhelms me. Is faith just another word for cope? It's always about time, always a matter of time, especially for the creation of complicated financial products. Related thought: why do American insurance companies delay claim settlement for as long as possible? Luigi forgot to inscribe the word delay on the bullet, but it's a rallying cry against insurance companies for a reason. The standard practice of delaying settlement is integral to how the insurance industry conjures profits out of thin air. Hospital groups work in tandem with insurance conglomerates, themselves enmeshed with the medical industry, to generate inflated bills, which are turned into assets for loans. Claims settlement is delayed because time is essential in generating margin on medical bill hypothecation. Rinse, pause, repeat.

Tesla is the ur-memecoin and now we have a President, advised by the creator of the ur-memecoin, running memecoin plays days before ordering the creation of an executive office named after a memecoin. Jesus fucking Christ. Where are the adults? The fire sale of it all is giving Yeltsin. It seems everyone, not just the kids in the trenches, knows its time to get what you can and get out. Elon Musk, whose malformed prefrontal cortex is so soaked in crank libertarian memes he's got the first case of wetbrain by internet, is stripping the federal government for parts. Americans are numb from the Ten Years War of the Woke and the previously depended upon liberal middle class just isn't putting up much of a fight. The Democrats are stuck in limbo, doing Groundhog Day debates from the 2016 primary. Class first? Intersectionality? Babe, wake up, there's a trade war. This puts whatever exists of the American Left in a bind: having to defend the failed institutions of a crumbling liberal democracy that undergirds the global capitalist system. What do we do when liberalism itself has lost consciousness of its own sovereignty? A lot of our commentariat is stuck, regressing into historical analogy and looping back in time in search of neat metaphors that will forecast tidy solutions, shirking responsibility for analyzing the objective conditions of the moment. I'm not saying I'm much better, but I think the first step is insisting on the radical reality of the present: we've never been here before.

But it's not just the Left that is stuck trying to reanimate the comforts of the past. It's everyone. I was thinking about this during Trump's inauguration speech. "We are a rich nation," he said, a bit too self-consciously. "It's that liquid gold under our feet that will help ensure that we keep things that way. America will be a manufacturing nation once again. We sit on the most oil and natural gas of any nation on earth and we're going to use it." He went on to declare (another) national emergency, this time with energy. "We will drill, baby, drill." The series of executive orders that oozed out not only relaxes protections across both the oil and gas sector but undermined or completely restricted renewable energy efforts. I've been reading the excellent Crude Capitalism, Adam Hanieh's sprawling history of the concomitant rise of oil — unique as both a resource and a commodity — and modern global capitalism:

Because of what it does for capital accumulation, [oil] has become an indelible part of our social existence, embedded in the materiality of commodity production, our food systems, the kinds of urban spaces we live in, military power, and the global financial architecture that has emerged through the second half of the 20th century. It is this everywhereness that makes the problem of oil so hard to unpack and thus so difficult to challenge.

The fundament of the global capitalist system, which the United States guarantees through its empire, is sticky and toxic, liquid gold. It's weird to hear Trump say we are in an energy emergency when we produce more oil and gas than ever before, from shale plays to deep shore. In fact, the highly touted "energy transition" has been led by American global extraction conglomerates, rebranding themselves as energy firms. Transition itself seems to be the wrong word to describe this process as new sources are simply layered on top of existing ones, creating a tranche of energy products (resource and commodity), with oil and gas still leading the mix. For example: the oil and gas sector is one of the most computational intensive and big data reliant industries in the world and therefore one of the IT sector's biggest customers. Oil and gas exploration alone creates critical new use cases for big data centers, cloud computing and other IT industry boondoggles, with its demand for ever more precise toolsets. On the flip side, data centers themselves will create a surge in demand for electricity that is without precedent and so the success of the American AI push will guarantee profits for oil and gas well into the future. Some of the biggest energy market players said as much last year: "Gas is the only cost-efficient energy generation capable of providing the type of 24/7 reliable power required by the big technology companies to power the AI boom."

But the FT went on to say that "the bullish outlook from the US fossil fuel producers comes amid a period of weak natural gas prices, which has forced consolidation among shale producers — and an effort to find new sources of demand." The national energy emergency is one of demand, not production. That's exactly what the WSJ reported after the election: "many of the tycoons who backed the Republican's victorious campaign say what they need help with is shoring up demand for their products ... shale companies are producing more than enough to satisfy American consumers." A crisis of demand means a crisis of overproduction and thus a crisis of overaccumulation of investment, and the only way out of that is the destruction of existing capital to restore profitability. This is the crisis of capitalism, what propels the global system forward through devastating destruction. For their part, it seems the heads of the oil and gas industry are hoping that Trump's commitment to drill, baby drill manifests in the opening of new markets for energy products, thus resolving the demand crisis for the time being. That hope may have been dashed with the arrival of DeepSeek, a Chinese LLM so powerful it tanked the stock market instantly.

This little computer program blew a hole so big in the veil of the American project it may as well have been nuclear. For years, America's biggest ideological export, Silicon Valley, has relied on presenting the race to AGI as a kind of Manhattan Project, legitimating their need for speed. Part of the Chinese truth-nuke was demystifying the building of this technology as a repeat of the famed arms race. DeepSeek is an everyday, open-source technology that is better, easier and cheaper than anything the Americans have put forth. Its dangerous because it represents possibility: there actually might be another way. None of this technology needs to be run out of a colossal black box, centralized among the hands of a few for rent extraction and profit. None of it needs to be done by the Magnificent 7. These tools are not nuclear bombs and China is not the Soviet Union. So much of the American mythos is wrapped up in Cold War hagiography, it's shocking to see the ideological house of cards buckle so easily. But DeepSeek unmasked American capital misallocation on a structural level and this information alone was enough to destabilize the entire financial market. And while various American business leaders insisted otherwise, it seems the AI moonshot — the belief that this technology will be capital's final hack, ushering in eternal glory in the form of endless profit accumulation — has hit a major setback.

Trading on midcentury nostalgia porn isn't specific to AI marketeers, it's everywhere now, from the retro Reaganite cosplay to the sad parodies of "industrial policy" to the piles of now-discounted books touting the return of 20th century welfarism. What is up with everyone trying to reanimate the past? We don't even have the story straight. America became an industrial power almost despite itself and then immediately de-industrialized to flood the world with complex financial products while setting the rules for global capital flows by nuclear force. Now, faced with the reality of our terminal condition, we are stuck mining our history like an LLM, remixing various parts in the hope it might generate something new. It's not. We are looping, projecting a fantasy of history backwards, using it for the fabric of dreams too empty to produce anything beyond recursion. It just feels like we are out of ideas.

In the meantime, the Country That Cannot Be Named now globally dominates all of the industries Cold War America supposedly built, like automobiles, information technology, industrial robotic machinery and so on. China is a real, 21st century manufacturing powerhouse, not an imagined one. The reaction to this has been a political tantrum, mostly throwing tons of money at things like semiconductors to quiet loud consumer sectors, but it just resulted in more of the same: few concrete outcomes and lots of PR for the cause. The American system isn't set up to materially meet the moment. It is ripping at the seams under the weight of carrying forward human development in the face of epochal change. The Chinese energy sector has achieved lift off; the Americans are liquidating.

The CPC is the stuff of capitalist dreams and nightmares. You can tell it haunts the American architects. But the Chinese system matured into the new century's protagonist not despite but because of the world system out of which it emerged. It is both forged by and actively creating the circumstances of its dramatic inauguration. What will we do? Read between the lines of our political thought leaders and you'll see the self-consciousness on full display. Everyone from Mencius Moldbug to Matt Yglesias is grasping for clever bandaids to patch up an American system in crisis. And the nu-monarchists have reason to be jealous: in China the party rests above the state, the two working in tandem not unlike the King's Two Bodies. But the state's legitimacy is contingent and can be constitutionally reworked as needed; it is the party that is absolute. People like Marc Andreessen, with his philistine meme ideology, thinks a handful of 55 year old marketing gurus can ape a decades-old internet subculture and land on Mars. Pathetic. The senescence of our political culture would make Biden's brain blush.

One of the contradictions that fuels the development of capitalism is the tendency for the forces of production to socialize, its silent conspiracy. The Chinese project wrestles this contradiction out of the unconscious of capital and articulates it explicitly, taking hold of the reins and accelerating. This results in a completely different relationship between the capitalist class, the state and the party. The CPC never has to reiterate, Obama-style, that the capitalists Didn't Build That. Chinese companies like Huawei know their success isn't simply because of entrepreneurial skill or, conversely, the result of state coercion, threats of regulatory intervention or expropriation. They aren't working within and alongside liberal democratic institutions. Their success is the result of the development of the Chinese system in toto: world historical achievements made possible by clear party directives and investment, yes, but also nimble stewardship, protection and full throated support in navigating an American-led world system attempting to shut them out at every turn. And it works. But none of this can be said out loud because doing so would mean admitting that the American project is already an anachronism and time is not on our side. To their credit, Elon and his AnCap bandits seem to realize this and are dissolving the King’s body in acid. Maybe it’s time we catch up.

See you next month.

Yours,

Liz.