I'm no economist, but companies putting their cash away into assets like this is a bad sign right? My understanding is that money flowing indicates a healthy economy of people unafraid to spend.
Most SV companies are trading at at double digit price to sales ratios.
Palantir is at almost 30x.
You'd think the best thing for SV to do with cash is pass keep passing it around in same circle of companies or create new companies. If every dollar spent is creating $30 of valuation, you don't stop spending under your umbrella of corporations.
When Palantir buys $50 million in gold, it means that $50 million dollars has flowed to some gold broker, who will now spend it buying something else (labor, inventory, market research, sales, etc...)
Not really. Gold is an asset and has very little utility. Unless the gold broker physically dug up the material from the ground themselves (unlikely) then they would likely have had to put up dollars themselves to acquire the asset in the first place. Worse, if they bought the gold a year ago, they would have created negative value.
Wealth creation (which then flows to those things you mentioned) is typically seen when you use a scarce material to create goods and services that drive profits that then are used for those activities.
For example, let's say you bought $50M worth of gold bars, melted them and and sold them as earrings for $100M. NOW you have $50M to pay for labor, inventory, sales, etc.
I think you misunderstood, if you buy any amount of gold the amount of currency in circulation is identical before and after sale. The only difference is who has that cash and who has gold. Essentially the gold seller must value gold at or less than the sale price and the buyer values gold at or more than the sales price just like every other transaction.
I didn't misunderstand. We're sort of saying the same thing.
Palantir had $50M to spend on "something else (labor, inventory, market research, sales, etc...)" and simply shifted this opportunity to the gold broker.
The parent comment implied that this new found $50M was somehow going to magically create new opportunities for the current circulating capital. It's not.
The price of gold is speculative which means its very possible (and very likely) they lost money on the transaction.
Yes, but it’s clear Plantier had zero interest in using this money to make productive investments. The question then becomes what the gold seller is willing to do now.
Essentially a huge pool of unproductive assets like Artwork, Gold, Bitcoin, even Cash etc which seemingly hold a great deal of economic value, but fundamentally their economically irrelevant. Buying and selling them doesn’t really consume significant resources it’s just a handoff, every dollar going in is a dollar going out to either a middleman or a previous owner.
> Yes, but it’s clear Plantier had zero interest in using this money to make productive investments.
"productive investments" - what does that even mean? When a business has cash on hand it needs to decide what it is going to do with it to produce the greatest return possible. It doesn't matter whether you put it in an appreciating asset (gold bar potentilla) or an employee salary, businesses are just looking to get the highest return on the cash they have left from operations.
> Buying and selling them doesn’t really consume significant resources it’s just a handoff,
Compared to value stored it was. The base was already there, they built a small building, effectively reused military manpower, and stored almost 13,000 tons of gold. We are talking well under 1/1,000th the amount stored in expenses per year. At that point fluctuations in golds value are significantly more important than storage costs.
Consider in a more modern context how much security you put around an arbitrary amount of gold vs armed ICBM’s. Store them both in the same building and the gold is practically an afterthought.
The gold broker likely bought them for $49.5 million and sold them for $50 million, much like market makers in any other market. (Or it could have just been a private party transaction).
Either way, the $50MM still exists and is circulating, facilitating the buying and selling of things. It did not disappear or go out of circulation.
> The gold broker likely bought them for $49.5 million and sold them for $50 million
If they bought a year ago, they not only would have lost money on the transaction just from the transaction alone, but would have lost even more money due to inflation.
This is why assets that provide no utility (gold) rarely create value long term.
Well, yes, obviously the money doesn't vaporise. My question is whether these companies are taking a bearish position by investing into assets (instead of employees/new ventures), and whether this could be a sign of an economic storm approaching.
To add to that: when people buy gold to hold onto it as an investment, it takes gold off the market and puts dollars into the market. Gold is more scarce, and dollars are less scarce. This has two effects.
1) reduces the price of dollars and increases the price of gold.
2) Incentivizes more gold mining, which means that purchasing power that could fund science or innovation is instead being used to dig metal out of the ground. Maybe gold miners are getting higher wages while some professor has less money to pay grad students. Oil is being directed to power mining machines which makes all other energy use more expensive. And so on.
If Palantir buys $50MM in gold, they are not removing $50MM from circulation. They are giving $50MM to another entity, and receiving a piece of paper that says they own x number of gold bars in a vault somewhere. The gold doesn't move. The gold isn't doing anything different than it was before Palantir owned it.
The fifty million dollars continues to flow and buy goods and services. It is not removed from circulation. If you go out and buy a bar of gold do you think you are removing money from circulation?
By "sit on cash" you mean put it in a bank account where it is loaned out to businesses and homebuyers and governments who then spend it and continue circulating it.
Peter Thiel, himself, mocked this type of behavior from Google when Eric Schmidt couldn't find anything else to do with Google's hoards of cash rather than buying back shares. Thiel likened paying a dividend to admitting that your shareholders know what to do with the money more than you. It's even worse in Palantir's case because it is supposed to be a growth company that should be reinvesting the capital into growth.
During the last economic downturn interest rates in a few countries fell below 0. This means that banks start to charge for holding cash instead of paying interest. I suspect that he feels that interest rates will have to fall below 0 at some point so holding gold is a good alternative to save money for future use. Another possibility is that inflation will eat up the money's value so gold is a good place to store value until needed. I say it's a good sign that Palantir does not need immediate cash and are able to meet their expenses near term.
Also, Google and Plantir are in 2 different phase in their growth. Google is unlikely to need cash for growth since it's making a truckload of earnings every quarter. Palantir on the other hand is likely to need some money in the future to grow. Gold is a great alternative for Palantir but not Google.
Gold as a hedge against inflation always confuses me.
Why not buy a productive asset instead? Maybe even your own shares if they’re actually good?
Why would you sell your stock if you have no need for the cash? If I wanted to invest in gold, then let me do that myself. I have many better options than Panantir.
The point is investors can just buy gold. They don't need to buy stock in Palantir and then have Palantir buy gold for them. If you don't need cash and can't buy productive assets, give cash back to your investors and they can find something else to do with it, possibly buy gold.
> If you were in Zimbabwe 15 years ago would you rather buy shares in the top 100 Zimbabwean companies, or gold?
The interesting thing about that context, is you're likely screwed either direction.
You're existing under a very dangerous dictatorship 15 years ago, totalitarian. Gold isn't going to save you either, they'll just confiscate it. Gold in particular they'd want.
It's the very rare situation where things are so dire that a giant pile of gold is particularly useful, and somehow you're not going to get it taken from you by the people with all the guns.
Even in the US, at its most dire, and minus a dictatorship, gold was taken from everybody, confiscated; revoking the ability of companies and people to shield themselves from the substantial debasement of the currency.
One of the first things the dictator of Zimbabwe would plausibly do during hyper inflation is go after large piles of private gold.
If you, as a large share holder, were so bearish on Palantir's outlook - why would you bother keeping your money invested in them at all. Keeping your money in the company is a choice you've made above the option of divesting and just buying gold yourself. And for the company, it seems incredibly silly - companies don't exist as things if they lose their employees (which would happen if anything catastrophic enough to justify gold happened) and their shareholders.
Alternative reading - Palantir (being in the business of spooky levels of information) is predicting a global currency collapse... or a return to the gold standard - which is sort of just a slightly different flavour of a global currency collapse.
> why would you bother keeping your money invested in them at all.
I wouldn’t. They’re a money losing company that raised money by selling shares and didn’t even have a plan for that money. Then they did the least creative thing possible: bought gold. Something any investor can do with a dozen different funds.
If you want to share in palantir’s gold bet, save their fees and buy a gold etf/closed end fund or coins/bars directly that you can keep in YOUR basement.
That's exactly my point - buying gold in bulk like this is a clear way of signalling they're a bad investment since any sane investor will do just that - purchase gold that they control and that won't be subject to any bankruptcy collections exercised on palantir if they are in a really bad place.
Because Palantir is worried about the USD (and presumbably other major currencies such as the pound and euro) devaluing. There isn't an escape from that. Mars doesn't print its own currency yet.
Because the cost of production inputs rise faster than they can pass on the costs to their customers. If no one suffered from inflation, we wouldn't bother measuring it.
I think the idea is that everyone else in the world is doing that right now, and a huge portion of gains in recent times has been from a handful of companies, so I guess there is the choice between productive assets that are overpriced because everyone is dog piling in, debt that is basically negatively yielding against inflation or something like gold.
But 50 million isn't that much for a company like Palantir I would imagine.
When the world still operated on the gold standard, gold bullion was the perfect hedge against inflation. Dollars (and pounds et al) were priced in gold, and so any inflationary measure that devalued the dollar would have a theoretically perfect mirror in the price of gold.
That's obviously no longer the case, but the fact remains that gold is a tangible asset universally recognized as valuable. There are other such assets, but most of them are either commodities with a shelf life (like crops and refined oil), or bulky capital assets (like industrial equipment). And that's discounting the fact that inflation often causes economic decline, lowering the relative value of said marketable assets, even if they are performing relatively better than the currency they are valued in.
The only reason to include gold in an investment portfolio I could come up with is to decrease risk and volatility of the portfolio.
A separate issue is whether a company like Palantir should ever invest cash in public capital markets. Maybe when the company plans to invest in an internal project at some point in the future but doing a capital raise could be harder at that point.
Zero real rate of return. If bonds have a negative real rate of return and stocks have a RISK-ADJUSTED negative real rate of return, then gold or more generally commodities are a better option.
Interesting choice, gold has lost 5-10% of its value measured in USD over the last 10 years. One of the most inflationary periods ever and it hasn't even kept up with fiat.
> Inflation over the last 10 years averages 1.7%, which makes it probably the least inflationary 10 year stretch ever.
The US went through several stretches of deflation, prior to the modern fiat era. Some of those eras likely saw ten year stretches with close to no price inflation, particularly around the time of the industrial revolution (which applied enormous downward pressure to price inflation).
"Prices dropped an average of ten percent every year between the years of 1930 and 1933."
"Many people associate deflation with difficult economic times—slow growth and/or high unemployment—such as in Japan since the early 1990s or in the United States during the Great Depression. Yet, not all deflationary periods are associated with hard times. For example, in the United States from 1876-79, the price level fell on average almost 5 percent per year while average output growth exceeded 7.6 percent."
Of course this always invites the common economics debate centered around whether inflation should properly only be considered a purely monetary phenomenon or should include more comprehensive factors (eg supply and demand pressures). Ultimately I find the only thing that really matters is to define one's terms when discussing it, for clarity.
My property tax doubled. Good produce, meat, and fuel prices keep rising.
The 99 cent Hagen Dazs mini tiny ice cream cups in grocery freezer were 99 cents. Two weeks ago that changed to 2.49, though currently on sale for $2.29. I suppose the cups are so small they couldn't play the shrinkflation game.
Printed, sure, not counting for asset inflation, energy costs, healthcare, education, housing, and all the other things that really matter. But sure, you can get a Big Mac for less than $6 still.
Palantir is also buying up Bitcoin. Palantir is also trying to create more customers by buying startups via SPACs and giving them its software. Palantir is also largely run at the whims of its eccentric presidents-for-life and printing stock to compensate them like there's no tomorrow. Palantir is many things, and this is just one. I doubt it tells any larger truth about the market by itself.
TFA suggests they don’t hold any crypto currencies, but after 12 years of cryptocurrency, they have heard about them and talked about it over beers.
> was asked on an analyst call if the company could have bitcoin or other cryptocurrencies on its balance sheet, he said, “The short answer is, yes, we’re thinking about it, and we’ve even discussed internally.”
My late friend who was a BFF of Peter Thiel because they were Stanford chums, used to describe Palantir as an evil company wrapped up in Harry Potter metaphors despite taking money from them as a consultant. I see nothing but confirmation bias here. Commence the downvotes for even mentioning this.
His words not mine and since he's dead there's no opportunity for clarification here. Also, I used to see them wandering downtown Palo Alto dressed as monks or as people from The Matrix etc. The LARP was indeed strong with these folks.
> Its engineers were accustomed to spending profligately—the company sponsored 13-course tasting-menu lunches with lobster tail and sashimi at headquarters—calling such extravagance “Palantir Entitlement Syndrome.”
Having worked in Mountain View in late 2000s I can say extravagant meals were extremely common. I went on corporate excursions to exotic destinations regularly with insane expense limits on top of bar or dinner events.
Many of us have had a wild ride in tech, I think those days will take another 30 years or more to come back if ever.
