[PREVIEW] Episode 569: Computer Problems

**Liz Franczak** (0:30)
And I think that particular financing is not like just sitting beside all of the creative debt instruments, it's actually like functionally underwriting them, which is an important point.
Now, all of these instruments is a bet that the collateral's useful life outlasts the loan. That's how financing makes sense, right? That's how you finance something.

**Brace Belden** (0:56)
Yeah. So like, the data center lease or like the GPU itself outlasts?

**Liz Franczak** (1:02)
The GPU itself, right? Yeah. That, oh, that's no problem because it's gonna outlast how long this loan is good for. The problem is nobody knows how long these assets are good for. Yeah.
So that's the question of depreciation, which is, you know, the rate at which something becomes obsolete. That's kind of like the way to think of that, right? So there's two types of depreciation. There's physical wear, which is like, it's run down, it's old, time to replace.
You know, it's too old. And then there's what's kind of, what Mark's called moral depreciation, which is value that's been lost with no physical wear, because either the same machine can be produced more cheaply, or because a better machine has come to market.

**Brace Belden** (1:50)
So like the machine still works, but it's just like not as valuable because it's a better one.

**Liz Franczak** (1:55)
Yeah, absolutely.
Because of this, because these machines are always kind of facing this depreciation schedule, they have to be run flat out, continuously, always on.
So this is something that like Mark's wrote about with the factory, right? That the kind of obsolescence risk is the reason why you have day and night shifts, right? That's like the reason why the workday is so prolonged, because the factory has to stay always on. And this is something you can really see with the AI buildout, which is that the data center has to be run 24-7 at 80 to 90% load factor. And a lot of the reporting that came out this week was talking about this. Like all the GPUs have to be always on, because if it's off, it's just a pure value melt. Yeah, and that value is underwriting all of this other financing, right?

**Brace Belden** (2:53)
So like it only is, it's making money when it's working.

**Liz Franczak** (2:56)
Right, which is where demand comes in. But again, if it's all good, it's all good. So everyone is kind of like racing to amortize a melting asset before whatever is coming next, which is going to eventually just guillotine like all this value. And that's the kind of like big part of the AI race that isn't really mentioned as much.
Now you mentioned the financial crisis. So Michael Burry, and I'm going to set aside, he's a very controversial figure. My, you know, many say washed. He's a substacker. I don't know.

**Brace Belden** (3:30)
Michael Burry has only bought fucking like stocks in Bluetooth devices in the past two years. Like you need to pay attention to what's happening with Bluetooth. Here's the deal with this.
One person dunks a basketball one time, and everyone thinks they're Michael Jordan. Another guy does it all the time, he's not on TV, and nobody believes him. And this is the thing with Michael Burry. They made a movie about him, okay. But what's he done lately?

**Liz Franczak** (4:00)
Well, lately, he's been screaming about hyperscalers, and he's been talking about how, for accounting purposes, right, they've been stretching what these GPUs, like useful life is, saying that like, okay, we're stretching them from like, probably about three years to five to six years to suppress the depreciation expenses in order to flat, flatter earnings, which is what enables, you know, that's what's pushing valuations, which is converting into debt and buying more time, right? You see, it's kind of like this, I mean, it's like a musical chairs a little bit, or it's a, you know, a hamster wheel. That's a better one. It's a hamster wheel.

**Brace Belden** (4:39)
We should be using all this shit to mine Bitcoin. Yes.

**Liz Franczak** (4:44)
What happened to Bitcoin?

**Brace Belden** (4:45)
I'm like, how come we're not using all these fucking GPU, like, giant warehouses full of, like, billions of dollars worth of GPUs to mine Bitcoin and we just buy China? Like, these guys are idiots. You know what I mean? You have a, literally, you have a money printing machine, and you're like, hmm, what would it be like if I took a bite out of Brace's penis if it was an apple? We should answer that question. No, answer some fucking math equations and get me a Bitcoin, bitch. I'm trying to buy things.