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points by skew-aberration 2 days ago | 0 comments

What's wrong with this though? Value was created (a physical GPU), so assets go up.

Different people/orgs get a different slice of that value.

I would say actual value is created when the GPU is used to do something useful, like design a better bridge, or whatever, not when the GPU is bought or produced.

The accounting trick pulls forward the point of value creation, and relies on faith, if you assume "value" is supposed to be measured by "earnings".

Ultimately, investors can look at these earnings and decide to pay whatever they are willing to pay for equity in the companies. No one is forcing you to buy SP500 (except if you're part of a defined benefits pension plan). My point is that casual observers should not take earnings growth as proof that the economy is heading in the right direction. There are lies, damn lies, and statistics. And accounting. Msft seems to be pretty good at gaming the accounting fwiw! Financial engineering.

[–] skew-aberration 11 hours ago

Yes, it is speculative and subjective - but so is all value. You can't factor that out, because it is inherent to every transaction that humans ever make. We make decisions based on our own valuations of expected future outcomes.

Even the value of the bridge is not realized until people cross it. It takes decades for such investments to break even, if they ever do - far longer than a GPU (which probably costs less than a mere boardwalk across a ditch).

Accountants are doing exactly what they should - every asset and liability is broken down by its market value (speculative) which investors then use to inform their speculation about the value of the company. If they think the company is more valuable than the current market price, they buy more stock. If you think the market value of a GPU is too high, don't buy it.

The market can be (and frequently is) wrong - but it's not an accountant's job to predict that.

[–] sandeepkd 2 days ago

There is a cost to produce something based on raw materials and then the possible price you can charge from the customer based on demand and supply.

The term Value is pretty vague here. Its more of a perceived value so its hard to put a number against it, there is no direct way to translate it to something more concrete.

May be bit orthogonal, one way I can think of it is to map to physical needs like clothing, housing, food and medicine?

[–] skew-aberration 2 days ago

It is really only the perceived value which matters to a business - that's the value at which you can sell or replace your asset on the market. Offers above that price, you sell (and replace if needed). Offers below that price, you don't.

If it costs more to produce (and sell) the asset than you can sell it for, you're losing money and assets go down. If it costs the same, then in this example the net change in S&P assets would be zero.

[–] parineum 2 days ago

> there is no direct way to translate it to something more concrete.

There's an incredibly easy way to do that, sell it.

If Nvidia takes $20 of parts and sells it for $100, they created $80 of value. If we had VAT, that's what would be taxed (minus things like r and d but, for simplicity...).

[–] strobe 2 days ago

that definitely $80 of value for Nvidia added but does it really added something to whole system? if some physical goods moved from one company to another with generation of VAT, does it really add up to economy as whole or just one seller made bad decision and loosed some $, other gained few $ but overall balance of value just still same.

[–] parineum 1 day ago

> does it really add up to economy as whole

Yes.

I don't want to pick on you but this is a major pet peeve of mine. A lot of people view the economy as a fixed size of value. As a result, when someone is a millionaire, they consider that million dollars to be something extracted from others. That's a very Feudal view of economics. What's usually the case is that millionaire add a million dollars of value by creating a more valuable product from raw materials.

This example is an easy example. Before Nvidia, there was just a pile of silicon and copper worth $20. It doesn't take $80 to turn that thing into something that is worth $100. The value within the economy increased.

Most of economic activity is growth. There is economic activity that isn't growth, which is what rent-seeking is.

[–] strobe 1 day ago

I think it exactly what I'm trying to say. Current state is that GPUs that Nvidia produced are not really in use, they mostly stored in warehouses as is not enough power for them so while they has 'potential future value' it's not proven to be created as lot could happen, unlikely natural disaster or they just could loose in value as demand drops or competitor will came with cheaper option.

[–] skew-aberration 1 day ago

Yes, values are inherently speculative - the S&P is just measuring current market values though - something like the market consensus of the net present value (profits further in the future are treated as less valuable than profits today). As this consensus changes, the S&P goes up and down.

[–] whatshisface 2 days ago

The value of a physical GPU is yet to be determined, and is hard to reverse engineer from these figures.