***** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic Fare:
............. The less words, the better. Now we just need to ban Fed board member speeches, and we will truly be free!
One of the mainstays of the global order for the past seventy years has been American economic leadership and the use of the US dollar as the core means of exchange, store of value, and unit of account. This global function has never been without difficulties—in the aftermath of Bretton Woods and the Nixon Shock, scholars like Robert Triffin and Susan Strange identified the domestic and international costs of dollar dominance. The debate reignited after the global financial crisis of 2008, with some scholars warning that increased politicization of the dollar may prompt a gradual transition into a multipolar global currency system, and others continually championing the dollar’s institutional strength and the absence of credible alternatives.
Recent geopolitical conflicts around the world have only exacerbated doubts about the future of American hegemony, including the future of its currency. Unpredictable political leadership, trade wars, and the eruption of armed conflict in Europe and the Middle East have heralded a new era for the global system and generated proliferating predictions of de-dollarization. All this has accelerated in Trump’s second term, which seems to be actively laboring to throw the status of the dollar into disarray. The retreat from open markets, unpredictable fiscal policy, blustering confrontation with the Federal Reserve, and threats to reduce service on foreign holdings of US treasuries have all registered a significant departure from business as usual in Washington. An as yet speculative “Mar-a-Lago Accord,” devised by recent appointee to the Fed Board of Governors, Stephen Miran, sets forth an agenda to actively weaken the dollar in a bid to boost domestic manufacturing and reduce trade deficits. Though unlikely to come to fruition, its very articulation by those closest to the President stands as another threat to the credibility and reliability of the dollar.1 And with US military interventions causing more havoc in the global economy, the latest of which has prompted Tehran to all but close the Strait of Hormuz, questions of a new petro yuan or the introduction of a BRICS currency are gaining steam.
The historical record suggests, however, that a transition away from the dollar will be no simple task. Over the course of the last two centuries, there has been only a single transition from one leading international currency to another. This occurred in the aftermath of the Second World War, when the US dollar overtook the pound sterling as the main currency for international trade and as the leading reserve asset for national central banks. ..............................................................
Over the course of the last seventy years of crises and transformations in the global order, the dollar appears to have been resilient to the twists and turns of American policy, technological change, and geopolitical frictions. The currency distribution of global foreign exchange reserves and foreign-exchange markets has been remarkably stable for over thirty years and remains so even now, amid increasing political disorder. Even if the American empire itself is showing signs of fragmentation, the decline of the dollar is by no means assured. With no viable alternatives on the horizon, and in the absence of intense coordination among regional and global powers, the status of the US currency—and the global payments system that underpins it—may outlive expectations.
HOW THE PHYSICAL DERAILS THE FINANCIAL
Even if the flow of shipping through the Straits of Hormuz were to resume immediately – and there’s very little likelihood of that – more than enough damage has already been done to ensure that the economy will take a very big hit within a matter of months.
This blow will initially be physical, not financial, though a severe financial crisis will follow swiftly in its wake.
This is a physical event because it’s axiomatic – but it can’t, in these circumstances, be reiterated too often – that we cannot expect the banking system to lend energy and other raw materials into existence, or ask central bankers to conjure these resources, ex nihilo, out of the ether.
One of the basic tenets of Surplus Energy Economics is the principle of money as claim. This states that “money, having no intrinsic worth, commands value only in terms of those material products and services for which it can be exchanged”.
Money, then, is claim, and has no value in the absence of substance, and a severe loss of substance is now nailed on within a very short time. ....
The almost staggering thing about the crisis in the Persian Gulf has been the sheer insouciance of governments and the markets. All of these events might have been taking place, not at the most important material economic node on the planet, but in ‘some far away country of which we know little’.
Most Western governments have totally failed. They have made no efforts to contain non-essential energy consumption. They have developed no ideas about how to prioritize vital over less important uses of energy. They have done nothing to prepare for rationing of energy and other necessities.
Investors, meanwhile, have seen nothing anomalous about markets hitting new highs even as the material economy heads into a train-crash.
There’s a lamentable tendency, in economics and decision-making alike, to concentrate on the monetary whilst almost wholly disregarding the material. There are likely to be sincere expressions of genuine surprise when the long-predictable crunch in the material economy triggers an extreme financial crisis, something which is highly likely to occur by the autumn of this year. ................................
Ultimately, though, bubbles are psychological, and occur when a culture of greed so overwhelms prudence and reasoned appraisal that rational behaviour is over-ruled. ........................
Though ECoEs began the 1990s at 3.0%, and reached only 4.2% by the end of the decade, this was a sufficient headwind to create the phenomenon known as “secular stagnation”.
Since this causation wasn’t recognised – let alone admitted – decision-makers had recourse only to the “credit adventurism” of making debt ever cheaper and easier to obtain.
This necessarily led to the GFC of 2008-09, to which official responses amounted to adding “monetary adventurism” to the failed credit version. ..................
ADVENTURES IN THERMO-ECONOMICS
...................... Since 2005, reported global real GDP has grown by 94%, or $102 trillion PPP at constant 2025 values. Over that same period, though, debt has expanded by almost $300tn, and broader financial claims by not less than $800tn.
This means that each dollar of reported “growth” in GDP has been accompanied by almost $3 of net new debt within an increase of at least $8 in broader financial claims.
The world’s average person may have enjoyed a $26,000 (56%) real terms increase in his or her share of GDP since 2005. But this average person’s share of debt and broader claims have increased, respectively, by $59,000 and about $150,000.
It’s at this point that we need to remind ourselves what GDP actually is.
Contrary to an extremely widespread misconception, gross domestic product is not a measure of the amount of material economic value – in the form of goods and services – supplied by the economy in any given period. Rather, GDP is a monetary measure of transactional activity in the system.
In essence, most of the growth reported since 2005 has been nothing more substantial than the spending of huge and growing amounts of borrowed money.
We can calculate that fully 65% of all global “growth” reported over the past twenty years falls into this cosmetic category. On this basis, the material economic prosperity of the average person hasn’t increased at all since 2005 – but his or her burden of debts and quasi-debts undoubtedly has. ................
As you may know, the SEE thesis is based on (a) the economic primacy of energy and (b) the principle of money as claim. The latter states that “money, having no intrinsic worth, commands value only as an exercisable claim on those material things for which it can be exchanged”.
Ultimately, if money is a “claim on goods and services” it is, in reality, a claim on the energy required to make these things available. Likewise, debt, as ‘claim on future money’, is in fact a claim on future energy.
This makes clear the need to think in terms of the parallel two economies of the material and the monetary.
To benchmark the financial against the physical, we need to understand the “real” economy of material products and services as a system which uses energy to convert other raw materials into goods, artefacts and infrastructures, as part of a continuous process of creation, consumption, relinquishment and replacement.
Beyond the total amount of energy used in the economy, the critical parameters here are the rate at which the use of energy converts into material economic value, and the proportionate cost of putting energy to use.
Applying these precepts to modern times delivers some pretty sobering results. As depletion of the non-energy resource base gradually erodes conversion ratios, relentless rises in the proportionate Energy Cost of Energy have been driving a widening wedge between top-line economic output and ex-cost prosperity. ....................
We’ve been here before, in the inter-war years, when the coal impetus deteriorated, but back then we had oil (and, latterly, natural gas as well) waiting in the wings as replacements. Had oil and gas not existed as successors to coal, the Great Depression might have become permanent, and recovery from the Wall Street Crash, which in any case took 25 years, might not have happened at all.
The big difference between now and then is that, despite outlandish claims made for renewables and nuclear power, no such ready-and-waiting successor to hydrocarbons exists today, and we’re about to discover that infinite, exponential economic growth on a finite planet really is the preserve of ‘madmen and economists’.
We’ve been trying – and, of necessity, failing – to reinvigorate the material economy using monetary tools. The result can only be a financial crash ..................
A CRISIS IN CONTEXT
By definition, news has to be new, and there’s nothing novel now about salvoes being traded across the Persian Gulf, or parties to the conflict alternately blowing hot and cold about negotiations.
With each day that the Straits of Hormuz remain closed, though, a severe supply shock looms nearer.
The financial markets, it seems, have become bored with the war in Iran. Investors’ thoughts now are focussed instead on how much capital to invest in proven, sure-fire money-spinners like space tourism, mining asteroids, manufacturing on the Moon and building data centres in space.
AI investors continue to pour gargantuan amounts of capital into a project which, whatever its technological merits may or may not be, makes completely unrealistic demands for energy, water and raw materials.
It might seem logical to wait on the autumn’s events before committing yet more capital to the farther reaches of “tech”. But logic seems to have become deeply unfashionable in the financial markets of the 2020s.
Our source texts here aren’t the giants of sci-fi, but Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds. We’re deeply mired in the same crowd psychology that gave us Dutch tulip bulbs and the South Sea Bubble. .......................
These graphs are a useful corrective to the myriad claims that renewables are going to give us a seamless, growth-continuing transition away from fossil fuels. There are very good reasons why no huge and profitable renewables majors – no Standard Solar Trust or Gulf Wind Inc. – have taken over from where John D. Rockefeller and the Seven Sisters left off.
Whatever view one takes about the merits of carrying surplus energy research back as far as we can, these illustrations surely tell us something fundamental. This is that the impetus initially imparted to the economy by the harnessing of fossil fuels, and especially by the advent of hydrocarbons, has been fading out, not over years, but over decades.
This might be welcome news for anyone for whom environmental deterioration is the primary concern. But the idea that we can find new sunlit uplands of growth now that the carbon impulse has faded is strictly for the birds. ..................
Market Fare:
Since January, the entire S&P 500’s gains have come from just two corners of the market, AI and energy, while everything else is actually trading at less than where it started, see chart below.
Commodity prices are moving higher across the board, but for different reasons in each segment.
Middle East supply disruptions are lifting energy and fertilizer prices.
The data center buildout, alongside EVs and electrification, is driving demand for base metals like copper and aluminum.
Higher inflation is fueling safe-haven demand for precious metals.
There is a distinct psychological breaking point in financial markets where the pain of holding a position simply overwhelms the fundamental thesis. It is the moment when the last remaining optimists throw their hands up in disgust, liquidate their holdings, and walk away.
In the gold mining sector, we just witnessed that exact moment.
The data is screaming that the market has reached a state of absolute, unadulterated capitulation. The weak hands have been violently shaken out, and the sentiment slate has been wiped completely clean.
For the contrarian investor, this is the most important signal you can receive. Markets do not bottom on good news or when everyone is comfortable. They bottom in the dark, when the narrative is overwhelmingly negative and the vast majority of participants have abandoned the trade.
The current sentiment readings in the gold mining space are not just low; they are historically washed out. We are currently sitting in the exact kind of panic zone that has consistently served as the launchpad for the most explosive rallies in the sector’s history.
Living through these capitulation events in real time is never easy. The price action is brutal, the headlines are toxic, and the instinct to sell is overwhelming. But successful investing requires the discipline to buy when others are panicking.
The data tells us that the selling pressure has exhausted or nearly exhausted itself. The fundamental setup for gold and the miners remains incredibly bullish, driven by the “run it hot” macro policy, structural inflation, and a weakening dollar.
Now, the sentiment setup has finally aligned with the fundamentals, creating an asymmetric opportunity for those willing to step into the void.
It’s official: the world stock market is now as wild as it was during the tech-stock bubble. Since April 2026, we’ve had epic levels of return dispersion. AI excitement is driving extreme price moves, with some large-cap technology stocks up 50% to 100% in a single month. While it’s normal for small-cap stocks to sometimes rise 50% in a month, it’s not normal for the whole market to be meaningfully impacted by extreme winners. The chamber of dispersion has been opened, the beast of volatility has awakened, and the season of chaos is at hand. ...............
An alternative approach is to focus on individual stocks. Since market return is ∑wiRi, there are two ways that an individual stock can have a big impact on the market: either by having a big w or a big R. Much ink has been spilled on the topic of market concentration; that is, stocks with a big w. But today we see a different phenomenon: the market is being impacted by stocks with a huge R but only a modestly big w. .............
Well, dispersion isn’t low anymore. While dispersion is only a minor bubble symptom (I don’t include it in my Four Horseman of the Bubble Apocalypse), anytime you see the latest data looking a lot like 1999/2000, you’ve got to be concerned. ................
Sharp reversals often reveal underlying stress that has been building beneath the surface long before it becomes obvious in the major indices.
1. Valuations Are Historically Extreme — The market is entering this period of volatility from one of the most expensive starting points in history.
The Shiller CAPE ratio recently pushed above 40x, a level only seen during the dot-com bubble and the post-pandemic liquidity boom. Meanwhile, total U.S. market capitalization sits around 237% of GDP, putting Buffett Indicator readings near all-time highs.
History doesn’t tell us exactly when valuations matter. It does suggest that when starting valuations reach these levels, future returns become increasingly dependent on continued optimism rather than fundamentals.
2. The SpaceX IPO Could Be a Sentiment Marker — For months, I’ve speculated that a potential SpaceX IPO could coincide with a market top. Market peaks are often characterized by investors assigning extraordinary valuations to extraordinary companies. ................
In search of an index bump!
.......................................................................... As for the companies (SpaceX, OpenAI and Anthropic), I will wager that they will lose little in market momentum from not being included in the index, and that their price paths will be determined by how the AI story continues to play out in terms of both substance (growth, unit economics, reinvestment) and perception (hype and momentum). The bottom line is that S&P needs these companies in its index more than they need to be in the index, with the consequence that the companies will not go out of their way to meet index requirements that they feel are costly to them, and that if there is any bending, it will be S&P that does it.
Bubble Fare:
When companies as a group turn into sellers, it’s a reasonable sign that stocks are very overpriced
What should you do if investors bid up your stock on the basis that you will be a winner in artificial intelligence, but your product isn’t popular? Elon Musk has the answer: Use your expensive stock to buy another AI business.
SpaceX’s SPCX -3.56%decrease; down pointing triangle $60 billion all-stock purchase of Cursor, a programming assistant that popularized “vibe-coding,” makes Musk a player in corporate AI in a way that his Grok chatbot hasn’t.
It is also part of a rush of stock issuance that should raise serious red flags even among those who dismiss elevated valuations.
Companies always have a choice of how to finance capital spending and takeovers. They can raise debt or issue stock (or a mix). If interest rates are low, debt is cheap for companies. Equally, if stock valuations are high, it is “cheap” for a company to issue more. Only firms in desperate need of cash sell more shares when their valuations are low, because it dilutes existing shareholders and trashes the share price.
Legendary investor Benjamin Graham thought of “Mr. Market” as a manic-depressive, offering daily prices to investors—sometimes far too high (you should sell) and sometimes far too low (you should buy). Mr. Market also offers companies the opportunity to buy from or sell to us investors—and when they issue stock, they are choosing to sell. ............................
When it becomes concerning, at least in my view, is when there’s a flood of fundraising, debt or equity or both. If lots of companies are raising cash to chase the same opportunity—in this case AI—there are three possibilities.
The bull case is that the opportunity is so huge it can absorb all the cash and still deliver fat profits. The bear case is that the opportunity is real but spending so much will destroy value as competition erodes margins. The deeply depressing third possibility is that companies are raising and spending so much merely because shareholders are cheering them on, and the AI claims are just wildly overhyped.
The danger is it turns out like the dot-coms. Then, like now, companies competed to spend as much as they could as quickly as possible and the “burn rate” was seen as a positive—until it turned out all the shareholder money had gone up in smoke.
................ Back in December 1996, then Federal Reserve chair Alan Greenspan characterised the boom in technology, media and telecom stocks as showing signs of “irrational exuberance”. Almost 30 years later, we can say the same about the AI boom with bells on. This investment boom is already much larger than the dot.com internet investment of the late 1990s ever was.
..... US GDP growth is now driven almost exclusively by rising tech spending. If this starts to drop, the US economy will enter recession very quickly — even if tech investments decline only by a little bit, say 4 to 6 per cent, as happened after much smaller tech booms in the 1960s and during the 2009 recession.
..... Headline profitability is being flattered by a small slice of the economy earning extraordinary returns from the scramble to build AI capacity. The risk, then, is that the economy, the profit cycle and the stock market “are all leaning on the same narrow pillar. If the expected returns on AI infrastructure and platforms are questioned, the fallout may not stop at a few richly valued technology stocks.”
As I have pointed out in previous posts, up to now the massive investment in AI has been mostly funded by the profits already being made by the hyperscalers. But given the impossibility of finding enough additional revenues to self-finance their capex plans, hyperscalers and their hardware providers are increasingly using external financing to fund them.
The first game is ‘circular financing’ ie by cross-investments between Microsoft, OpenAI, and others. .................
The US economy today really is two economies in one. There is the tech economy and then there is everything else. Over the last four quarters to the end of Q1 2026, 93% of US GDP growth is due to tech investment alone (although much of the purchases are imports and not produced domestically).
This is a bubble waiting to burst. ................
...Just as the next Global Financial Crisis looms.
Professor Daniela Gabor referring to the AI bubble, argued recently on instagram:
The iceberg is ahead of us, but we are being told to look the other way.
......... A financial crisis and recession in both the US and Europe will be an inevitable consequence of an AI implosion. And who can trust President Trump’s chaotic administration to manage another crisis on the scale of 2007-9?
Whatever happens, and just as in the Great Financial Crisis, it will be all of us that will pay a price for the bursting of this bubble, and the economic collapse and failure that will surely follow. ............
We are currently living through the largest capital expenditure cycle in the history of global capitalism. The sheer velocity and scale of the money being poured into artificial intelligence infrastructure is entirely unprecedented, dwarfing the railroad boom, the electrification of the country, and the original internet buildout.
History is very clear about how these massive infrastructure manias end: they always result in a spectacular glut of capacity, followed by brutal, multi billion dollar write offs. This time will absolutely not be different. The laws of economic gravity have not been suspended.
However, recognizing how the movie ends does not mean you should leave the theater right now. The most dangerous mistake an investor can make during a structural mania is being early to the short side. We have to get from here to the inevitable bust, and the path between those two points is paved with extraordinary, irrational profits.
When you map the current A.I. infrastructure boom against the dot com bubble, the parallels are uncanny. The data suggests we are not at the peak of the cycle; we are sitting squarely in the equivalent of 1998.
This means the market is not on the verge of an immediate collapse. Instead, we are staring down the barrel of several more years of absolute valuation insanity. The hyperscalers are trapped in an existential arms race, forced to spend hundreds of billions of dollars on GPUs and data centers just to stay relevant.
This forced spending will continue to drive the broader market higher, creating a massive, multi year melt up, capturing the natural resource sector in the process, before the eventual reckoning. .............
Half of the S&P 500’s market capitalization now sits in stocks trading above ten times sales. This is a piece about what that number means and what history says happens next. It is not a prediction.
Half of the S&P 500’s market capitalization now sits in stocks trading above ten times sales. This is a piece about what that number means and what history says happens next. It is not a prediction. It is arithmetic. And arithmetic does not care how you feel about it.
It’s the year 2002.
Sun Microsystems had crashed roughly 90% from its peak.
CEO Scott McNealy then gave one of the most remarkable interviews in financial history. He did not blame short sellers. He did not blame the economy. He did not blame his management team. He blamed his investors. For paying ten times sales.
Scott McNealy, CEO of Sun Microsystems, 2002: explaining why paying 10x sales for his stock had been insane.
His logic was devastating in its simplicity. At ten times revenues, he explained, to give you a ten-year payback the company would have to pay out 100% of revenues for ten consecutive years in dividends. No cost of goods sold. No operating expenses. No taxes. No R&D. Just hand you every dollar of revenue. And even then, you would need the current revenue run rate maintained for a decade.
«Do you realize how ridiculous those basic assumptions are?» he asked. «You don’t need any transparency. You don’t need any footnotes. What were you thinking?»
McNealy was not speaking hypothetically. He was performing an autopsy on his own stock. Sun never recovered; it was eventually swallowed by Oracle for a fraction of its peak valuation. The company that branded itself «the dot in dot-com» became a footnote.
That was 2002. One company. One cautionary tale that every investor nodded along to and promptly forgot.
Today, 51% of the S&P 500’s market capitalization trades above ten times sales. .................
Let me give the bulls their strongest argument, because it is a good one, and a piece that ignores it is propaganda, not analysis.
The objection goes like this. Today’s leaders are nothing like Sun Microsystems or the profitless companies of the dot-com era. Nvidia, Microsoft, Alphabet, Meta – they are among the most profitable enterprises in history. Fortress balance sheets, real earnings, and record margins that genuinely do justify higher sales multiples: a 30% net-margin business deserves a richer multiple than a 10% one. The quality is real, and quality deserves a premium.
All true. And I agree with most of it.
But notice what it defends: the businesses, not the prices. Cisco was wildly profitable in 2000. So was Microsoft, which still fell 65% and took sixteen years to recover. And the margin argument cuts both ways: margins are the most mean-reverting series in finance. Paying ten times sales while margins sit at all-time highs means stacking two optimistic bets – that the peak multiple holds, and that peak margins persist. Two things must go right, not one.
Profitability protects the company. It does not protect the multiple.
A great business at a great price is the foundation of every fortune. A great business at 25 times sales is a bet that the next decade will be flawless. The first is investing. The second is hope wearing investing’s clothes.
To be clear: I am not saying AI is a bubble in the sense of a fraud or a fad. AI is real. The productivity gains are real. The capex cycle is real – just as the internet was in 2000, just as railroads were in the 1870s. Every one of those revolutions changed the world. And every one of them ruined investors who paid too much for the privilege of being right about the future.
The technology is never the problem. The price is the problem.
When half the index trades above ten times sales, you are not investing in innovation. You are betting that a historically improbable outcome will materialize across hundreds of companies at once. That is not investing. That is faith. And faith, in markets, has a remarkably poor track record. ..........
Today, the largest IPO in human history launches.
.................................. Make no mistake — the bull case is real.
.......................... This is a real document. Filed with the SEC. When a company asks roughly 90 times sales today on the premise that asteroid mining will one day fund the cash flows, it is not selling a stock.
It is selling a worldview.
Consider the AI line alone. To justify $26.5 trillion, SpaceX is effectively asking you to believe Grok becomes one of the most valuable software franchises on Earth — on the back of two compute contracts that either side can cancel with 90 days’ notice.
In our view at arvy, that is not a moat. That is a handshake.
That worldview might even turn out to be right. The question — the only question — is whether you want to buy it on Day One, at this price. ..............
Chart 4: How hyped IPOs typically trade — pop, unwind, dead money, then lift-off (illustrative, not a prophecy)
The most-watched IPO in history wasn't really about rockets. It was a masterclass in something else — and there's a lesson in it for every investor.
.......... But that’s not the part I couldn’t stop thinking about. Strip away the rockets and what you’re left with is one of the most elegant pieces of financial engineering I’ve seen in my career. Not a fraud, not a scandal — something more interesting than that. A deal designed, end to end, to manufacture demand and bend the mechanics of price discovery in its own favour.
It’s worth slowing down and walking through how it was built. Not to dunk on it — but because the mechanics teach you something about how markets actually set prices. And because the lesson at the end is one most investors only ever learn the expensive way.
Here’s everything that happened, in order: .............
The narrative shift
Start with the story, because every great valuation begins with one. .........................
That single move reframed a hardware business as an AI play, and it let underwriters justify a multiple on the order of ~90x trailing revenue. For perspective, traditional aerospace and industrial names trade at low single-digit price-to-sales. The narrative did the heavy lifting; the multiple followed.
You don’t have to decide whether the space-data-centre vision is real to appreciate the move. The story changed the math. ............
................ Here’s where most takes stop — “it’s overvalued, so it’ll crash” — and here’s where I think they’re wrong.
On every measure that has ever mattered, SpaceX is expensive. Morningstar’s analyst pegged fair value near $780 billion, roughly 55% below the IPO price. A company losing billions a quarter, trading near 90x revenue, is not cheap by any definition that’s ever worked.
And yet.
Price doesn’t fall just because it should. Price falls when sellers outnumber buyers — and this entire structure was built to make sure that never happens. A 4% float means there’s almost nothing to sell. Index funds are forced buyers. Retail won’t let go. Insiders are locked up. The supply that cracks a normal overvalued stock simply isn’t there.
That’s the uncomfortable, beautiful part: the very thing that makes it overvalued is the same thing that protects it. Scarcity cuts both ways. You can be completely right about the valuation and still watch the stock squeeze higher for months. ...............
SpaceX went public on Thursday. By Monday evening, after-hours trading had pushed its market capitalisation past $3 trillion, surpassing Microsoft1.
Options trading begins today, though the company lost $4.9 billion last year2.
Make sure you take that in.
First, the technicals. You can skip this if you prefer, it’s primarily there to establish how absurd the valuation is. It’s dot-com on steroids, if you will. .............
This structure feels uncomfortably familiar in two ways. The valuation mirrors the dot-com bubble: companies with no earnings and endless ‘addressable markets’ kept afloat by incoming capital until the music stopped. But the end buyer has changed.
In 2007, a different piece of financial engineering — packaging subprime mortgages into products that got the highest possible safety rating — ended up in the same place SpaceX is heading now: pension funds. ..............
SpaceX isn’t a CDO, but the pattern is similar18. The IPO creates the market. Options multiply the bets. The gamma squeeze — where hedging forces more buying, which forces more hedging — pumps the price. And index inclusion means pension funds and tracker funds have to buy it, regardless of whether the company makes money, simply because it meets the entry criteria. The early investors who bought in cheaply before the IPO are the ones whose holdings are now worth multiples of what they paid — not because the company became profitable, but because new money keeps arriving.
In a Ponzi scheme, existing investors get paid from new investors’ money rather than from the business’s actual profits ...............
A.I. Fare:
Our progress towards recursive self-improvement and its implications
For most of AI’s history, humans drove every step in its development cycle. But at Anthropic, we are delegating a growing share of AI development to AI systems themselves, which is speeding up our work.
Taken far enough, and given enough compute, that trend points to an AI system capable of fully autonomously designing and developing its own successor. This is called recursive self-improvement. We are not there yet, and recursive self-improvement is not inevitable. But it could come sooner than most institutions are prepared for. ........
In one of the side plots to The Lord of the Rings, two of the Hobbits attempt to rouse Treebeard—a wise but ponderous sentient tree—to defend his forest from an army that is cutting it down. The problem is that Treebeard operates at a very different speed than the Hobbits. It takes him a full day simply to say hello to another tree, so getting him and his peers to act fast enough is nearly impossible.
The intersection of AI and our political institutions feels a bit like the Hobbits and Treebeard. AI is advancing at a lightning pace—in only four years, AI models have gone from barely being able to write a coherent line of code to writing most of the code at major AI companies. Similar gains have been made in biology, physics, math, finance, law, translation, and many other fields. AI’s scaling laws, which predict an exponential increase in general cognitive capabilities with increasing computing power, now have over a decade of empirical evidence behind them. If these scaling laws continue for only a year or two longer, we are likely to get what I’ve called Powerful AI, or “a country of geniuses in a datacenter”.
By contrast, policy—and especially legislation—moves very slowly. ...........
I will focus on five perennial policy areas that need re-imagining in an AI world: regulation and public safety, macroeconomics and tax policy, scientific innovation, the balance of power between state and society, and geopolitics. ........................
The work "slopification" is real.
.......... As far as I can tell there’s little evidence that US priced AI is more cost-effective than the employees who were laid off because it was so great. I rather suspect that in most cases, it’s less cost-effective.
But more importantly we have the “it’s better to be wrong with the crowd” effect moving against AI. In almost all positions, including executive ones, if you’re wrong in the same way that everyone else is wrong, it’s no big deal. If you’re wrong against the crowd (say not getting into AI when the rest of your industry is) and it turns out that AI is the next big thing, well, you’re fired.
So much of the AI mania was driven by this and a relentless hype cycle. Now that important people are beginning to push back on it, it’s no longer required to be all-in on AI. And that’s bad for Anthropic and Claude.
AI is not the next coming. It is not going to make it to general AI (not this generation of large language models anyway) and while it does have some utility the US frontier models cost far more to operate than any conceivable return most of their customers will receive. It isn’t the “get rid of three-quarters of your employees” super app corporate leaders were promised.
And to the extent it is useful, well Chinese open source models are more cost effective. As good? Generally no. But they keep catching up, and paying 70 to 97% less makes up for being somewhat behind.
So to the extent that AI is a real industry, odds are high China’s going to win the race. Since the models that will win will be built off open source models that’s not a crisis for anyone, it’s a good thing, far better than a proprietary future.
BUT it does mean that US AI expenditures are probably going to turn out to be the biggest misallocation of resources in centuries: bigger than the housing bubble and bigger than the dot-com bubble (which at least did have a world changing technology behind it.) Not quite the Dutch tulip bubble, but at least the Dutch got lots of pretty flowers of that, instead of massive ugly data centers.
Business is driven by stupid people engaged in group think, especially in the West, far more than most people will admit. Everything Silicon Valley does these days is someone trying to create a monopoly or oligopoly so they can be insanely profitable, while China actually competes on price, and that’s why China keeps eating the West’s lunch.
I’d cry, except that an open source AI world is a far better one than a proprietary one, and every tear some Silicon Valley tech bro cries over a lost opportunity to make a monopolistic buck an angel gets their wings.
The evidence on AI’s effect on those who use it has been coming in, and it’s not good. While it doesn’t effect everyone, it seems to effect most people, and the worst affected, it seems, are the young. Olds have the advantage of growing up in world where they had to learn how to do things themselves. To be sure, phones and social media seem to have had a negative effect on attention span and learning ability, but AI is yet another assault, and it hits the young hardest. ...............
Investing Fare:
37 Years, 6 Books, and the Single Question That Defined a Genre
........... the deepest lessons in these books have nothing to do with trading. They’re about risk, discipline, psychology, and failure. And those apply to every investor alive — including the buy-and-hold kind.
....... The best traders aren’t right more often — they just manage their risk better than everyone else.
..... Consistency beats brilliance. Most of these traders aren’t spectacular home-run hitters. They post solid gains year after year, through iron discipline and a clear rulebook.
... A good trade that loses is still a good trade — if the process was right. Outcome and decision are two different things.
...... The best think about risk first, return second. Dalio’s famous line — “diversification is the holy grail of investing” — becomes tangible here. It’s not the highest return that wins. It’s the best risk-adjusted return over decades. ................
Across 37 years and hundreds of interviews, Schwager keeps distilling the same four truths — whether the year is 1989 or 2026:
1. Risk management is everything. Every single Wizard, without exception, has rules to limit losses. They aren’t the ones who win the most. They’re the ones who lose the least when they’re wrong.
2. There is no universal method. Trend-followers, contrarians, fundamentalists, quants — all can win. The key is finding a strategy that fits your personality, and staying loyal to it.
3. Psychology beats technique. The biggest hurdle is never the market. It’s your own ego, fear, and greed. Self-knowledge is the ultimate edge.
4. Failure is part of the path. Almost every Wizard lost first — often everything. What sets them apart isn’t that they never fell. It’s that they got back up, learned, and kept going. ............
Three Sentences to Remember
- The world’s best traders aren’t right more often — they lose less when they’re wrong.
- There is no universal method. Only the strategy that fits your personality, and the discipline to stay with it.
- Trader or investor: risk before return, process before outcome, psychology before technique.
Quotes of the Week:
Doomberg: Against this backdrop, it is easy to dismiss the emergence and normalization of trillion-dollar public equities as little more than proof of how late in the game things are. That money-losing, privately held companies are not only permitted onto the public exchanges at seemingly unachievable valuations, but also their ownership is practically forced into unsuspecting retirement accounts through passive indexing, is surely a sign of some kind. But of what?
(not just) for the ESG crowd:
Radagast: Is Zeke Hausfather right, is Degrowth dumb?
Degrowth is dumb, you heard it here first!
Thank God for Zeke Hausfather! Where would be all be without this man?
Imagine you had a magic wand that would allow you to change the laws of physics, to make it so that CO2 and methane in the atmosphere do not actually cause global warming. Wouldn’t that be great?
Well, a degrowther would argue we would still find ourselves faced with big problems during this century, because the real problem we face, is the overall size of the human economy, the overall demands that we place on the Earth. But that is nonsense of course! As long as we just make sure to keep global warming below 1.5 degree Celsius, everything else will turn out alright on its own!
Today, I want to take a look with you at some of the non-climate problems that we face, that will require us to reduce the size of our economy do things a little differently. Just a little tiny bit, I promise! .............
............. Effectively no climate scientists are seriously looking at how plastics pollution impacts our overall chances of keeping global warming under control. When you hear about climate change in the media, you hear about what charlatans like Michael Mann and Zeke Hausfather are predicting. If you search really hard, you may hear from people who are actually honest about the scope of the predicament we face, like James Hansen, Rockstrom and Schellnuber.
Schellnuber by the way, has actual balls. He pointed out that if you continue on this trajectory you have all collectively agreed upon, as you all jump in your airplane to go to another exotic destination this summer that happened to be on your bucket list, the Earth will have a carrying capacity below 1 billion. Not some Dutch guy with a blog, an actual scientist. Billions of people will just die because the Earth will become too warm to keep them alive.
So take what I just explained to you. James Hansen, Rockström, Schellnuber, these people are seen as prophets of doom. And yet, those people have not yet incorporated into their models what happens if we continue producing plastics at the growing rate that we are producing them. This is an entirely new source of warming, on top of everything else that people have been investigating. ...............
................ Of course our CO2 concentrations will never stabilize around 400 parts per million, we’re already at 430 right now and there’s no reason to expect that emissions will reach zero anytime soon. TotalEnergy expects that by 2050 we’ll still be getting 60% of our energy from fossil fuels, down from 80% today. CO2 concentrations will inevitably rise well above what we see today.
If you want to know what the ultimate committed warming is, from today’s greenhouse gas concentrations, you’re looking at 10 degree Celsius of global warming. That’s what you end up with eventually, as the white ice sheets gradually melt and reveal a darker surface that absorbs more sunlight (heat), while the permafrost begins to release greenhouse gasses on its own. This is a process that takes centuries, but the idea people have, that we can stop using fossil fuels and temperatures will stabilize as a result is nonsense.
No, in reality, we’re now stuck with continuing global warming for centuries to come. But in the short term, it’s very likely to accelerate. A recent study suggests we’re facing 0.5 to 1 degree Celsius of warming, in the next ten years. We had 0.488 degree of warming over the past ten years, so this is simply a modest acceleration of what we’ve already seen. ....................
What’s actually happening is that the Earth is transitioning into a hothouse Earth state because of our actions. This is a process that has only just begun, but will continue to unfold for thousands of years to come. .............................
Again: There is no climate stability, as long as CO2 concentrations remain above 350 parts per million. Even 350ppm is a generous estimate, the safe target may be as low as 300ppm. And since nobody has a realistic way to bring concentrations back below 350, let alone 300ppm, there is no stability in our lifetimes. This is just how the climate system works. .......................
................. Now I just want to point out to you, that Hansen warns today that 2026 will become the warmest year ever recorded so far, because of the massive El Nino we now face. Look, I genuinely feel like I’m taking crazy pills.
Is there anyone who’s genuinely seriously thinking about what we’re dealing with, not by 2050, not in 10 years, no, simply next year? You now apparently face the worst El Nino since the 1877 El Nino, when 3% of the population, 50 million people, died of hunger. With every update I see, they’re saying the projection for the El Nino just got a little worse.
But unlike the 1877 El Nino, you’re getting your record El Nino, on top of ~1.5 degree of global warming we already caused. You’re getting your record El Nino, on top of climatological conditions that are already far outside the climatological conditions the handful of different cereal crops we depend on for sustenance evolved under.
....... The El Nino is going to be hitting simultaneously with a global fertilizer shortage, because of the blockade of the Strait of Hormuz, that has STILL NOT BEEN RESOLVED. It’s 13 June, the strait of Hormuz is still blocked, the ships can’t move through it. .........................................
Melting permafrost is releasing carbon into the atmosphere, but scientists may have underestimated just how bad the situation may be, a new analysis finds
Sci Fare:
Some of the most consequential discoveries in human history were made by people who weren't looking for them — and often didn't recognize what they'd found until later
Neural maps reveal the specialized cells that produce speech.
U.S. B.S.:
Perhaps you have noticed – if you have any idea who I am or give a damn – that I have slowed down my political analyses of our current situation. It’s gotten tiresome since little changes despite all the spilled ink.
What I am going to say is not uplifting, so you can rip up this letter now if you want encouragement. The people whom I thought I knew never changed. They continue to believe the false premises that keep them smiling despite decades of facts to the contrary. Smiling’s important, I guess, and they prefer false hope to none and feel much safer on the other side of desolation row. They keep shouting at me silently, as Dylan put it long ago in “Desolation Row”: “Which side are you on?” But I don’t answer such lame questions while they keep not thinking too much about desolation row for fear of going there. ............
Most journalists know where the official Stop signs are, and so many lack a sense of history and the long-term strategies of those who own the country. But they do know where their bread is buttered, and contrary to Thoreau’s advice in “Life Without Principle” – “Do not ask how your bread is buttered, it will make you sick, if you do.” – they no doubt suffer from little dyspepsia on the way to the bank. .............
Let me end by asking: What is the key false premise hidden in today’s analyses of Trump’s criminal activities in his second term? It is obvious that he does not fit the mold of past presidents. He is someone even Mark Twain might have trouble creating. He is beyond blatantly outrageous in his actions, statements, and self-glorification – his criminal wars and use of the national treasury to enrich himself and his extended family, etc. .............
It is now widely recognized – a recent editorial in the New York Times proclaimed it openly – that the Trump presidency is by far the most corrupt in American history, a history characterized by several none-too clean presidencies. The continuous self-dealing, brazen self-enrichment of Trump and his family, involvement in sleazy crypto-currency deals, numerous cases of insider trading (3,600 lucrative stock trades reported in the first quarter of this year alone, in what looks like a scam run from within the Oval office itself), presidential pardons for crooks in a well-organized system of quid pro quo, now attempts to exempt Trump and family from auditing by tax authorities, a pre-emptive exoneration of the Trump family from financial crimes, as well as looting from taxpayers to create a slush fund to reward cronies and other criminals – the list goes on and is unprecedented. .......................
War Fare:
............ According to our recently published energy strategy report, 103 Days, 38 Peace Deals, yesterday’s announcement would constitute the 39th peace deal declared since the onset of the war. ...................
The US has finally capitulated in its disastrously failed war against Iran, reportedly drafting a memorandum of understanding which is highly favorable to the Islamic Republic, and gains as concession nothing more than the promise that “Iran will not obtain nuclear weapons”—a position Iran had already long held. .........
In short, Iran called Trump’s bluff and won. Trump tried to pretend that the US could play the long game in “blockading” Iran until storage at Kharg and elsewhere began to overflow—but instead, it was the US that was edging toward economic catastrophe and Trump was finally forced to blink when he realized that Iran wasn’t going to lose this game of Chicken.
The prevailing narrative is now that Iran has gained the ultimate trump card, arguably bigger than obtaining nuclear weapons: the ability to control the Strait of Hormuz at will from this point forward: ..........
....................
Commentary:
This is a decisive victory for Iran and a loss for Israel and America, though I’d argue that the US ending sanctions and military efforts in the Middle East is good for America. Still, there’s no question that this is the sort of deal that gets signed when one side (Iran) won and the other side (Israel and the US) lost.
I mean — 300 billion in reparations. The US end their blockade first. The US says it’ll get move forces out of the region. The US ends pretty much all sanctions and gives Iran back their money.
Massive win for Iran. Iran is now a great power in the region, and no one can deny it.
The obvious problem here is Israel. If Iran is serious about an end to violence in Lebanon, then this will wind up as a dead letter unless the US tightens Israel’s leash (which it can do, Israel is entirely dependent on US aid). Alternative the US could simply shrug, and make the deal only between them and Iran, and say “if Israel wants to keep fighting, it’s on its own.)
The question here is the power of the domestic lobby, and whether or not Israel has enough blackmail on Trump. (Signing this deal at all makes it look like the answer to #2, which I thought was “absolutely” may well be “nope, not enough.” We’ll see.) .......
Usual, totally unacceptable BS from super-hypocritical US power.
Einar Tangen reminds us today that US policy with respect to Israel was formulated by Wolfowitz: impose your own economic policy as you must, batter your enemies around the head if they object.
Israel is a US pawn carrying out US policy. If Israel is obstructing the MOU it means that the US
The Islamic Republic and the United States were not 24 hours into the preliminary agreement they signed last Wednesday (digitally, without ceremony) to begin talks toward ending the war when things started to go swiftly south. Trump surrendered to Tehran, you read in corporate media. Trump acted out of sheer self-interest in signing this “deal” with the Iranians, as the inimitable Thomas Friendman had it in The New York Times. For his part, this from the president: “If it works out I’m going to take the credit. If it doesn’t work out I’m blaming J.D.”
Altogether serious, the Trumpster. Altogether up to this moment.
As to the Zionist regime in Tel Aviv, they quickly proved as diabolically serious as ever they do. Bibi Netanyahu ordered a new bombing campaign in Lebanon a matter of hours after Trump and Masoud Pezeshkian, the Iranian president, signed this accord. ............
You cannot beat the Americans for consistency, I have to say. Sergei Lavrov, the Russian FM, likes to call them “agreement incapable,” an amusing phrase, bitterly amusing, that is very like to prove out once again. And you cannot beat the Israelis for their predictable perversity, either. If Trump’s shambolic “deal” with the Islamic Republic is not already on the rocks, thanks to the Zionists, this is plainly where it is headed. ..........
Geopolitical Fare:
............. At a fundamental level what happened is that America got itself involved in a war which it couldn’t just walk away from. Losing in Vietnam was embarrassing but really, who cares? Just walk away. Losing in Afghanistan, likewise.
But the Iranians have the West’s balls in a vise and the vise was slowly tightening. Key reserves were way down. Oil at Cushing OK is near historic lows. Distillates are getting scarce. Market manipulation of the price of oil was very successful, but actual physical shortages were on the way, starting in a month or so. (Ironically, price manipulation meant that oil reserves drew down faster than if actual price discovery had been allowed.)
There is a real world, and a real economy and Iran had control of it. The econo-morons talking about how the effect of this has been less than the oil shocks are right when looking at market numbers, but it wasn’t going to stay less and even Trump figured that out. ...........
America cannot win this war. It is impossible. Even using nukes probably wouldn’t work fast enough. That’s why they agreed to a deal that is very pro-Iranian.
That has not changed. They can rein in Israel or cut it loose now, or they can do it in two months when the US is in much more pain, or in 4 months when there are food riots.
There’s a real world. America lost a war that matters. There’s going to be a price for that. If America is smart and not completely controlled by Israel, they’ll pay that price now and if necessary cut Israel lose, because the price will go up every day if the MOU fails.
Iran has forced the US into one of the biggest strategic defeats in its short, violent and bloody history.
The memorandum of understanding with Iran, signed (symbolically or not), at Versailles yesterday, signalled, as I wrote earlier this week, that we’re witnessing the collapse of American hard power.
After it was signed, Trump made some extraordinary comments that wouldn’t have looked out of place in the handbook of anti-imperial critique, including that it’s not fair to tell Iran it can’t have missiles if all it’s neighbours have them and that it’s “common sense” that the country should be able to enrich uranium for energy. Trump also admitted oil reserves were running out and the world was approaching a depression, which slays the idea (an idea I never bought), that the US attack was a genius move to control the world’s oil and gas.
Iran has suffered some serious damage to its infrastructure as well as burying over 3,000 civilians, but it has checkmated the US strategically. And Trump has had to accept that. Iran’s ability to hit key regional infrastructure from deeply-buried missile cities, along with its ability to control the Strait, won the day. The US also appears to be reluctantly accepting some other realities. A few hours after the MoU was signed, after it was put to him that Israel wasn’t happy with the tentative deal, JD Vance said that Israel “is a country of nine million people that can’t just kill its way out of every national security problem.”
They read the polls, they see the way the wind is blowing, and they’re moving with it.
Israel of course is still a vital strategic outpost for empire, and it will not be abandoned yet. But there is absolutely a future in which the value of Israel to empire becomes less useful than the economic value empire can gain from a wider peace in the region, even if that peace runs counter to Israeli interests. And if Israel, not Iran or the resistance, comes to be seen as the main obstacle to this future, a position Trump and Vance appear to be moving towards, it is entirely conceivable that Israel, just like South Africa, will be globally ostracised and abandoned. ...........
Which is all to say, Trump was a necessary evil.
Of course we’ll never know if a Democrat as president would have launched an attack on Iran, but it would have come eventually. And given that an attack on Iran was inevitable, it was the best case scenario that it happened under Trump, an ideologically drifting narcissist without any real loyalties or attachments. A man motivated to protect his own personal financial interests above anything else (a number of which sit within the range of Iranian missiles). A man who was always going to be outmanoeuvred by a country led, literally, by men and women with PhDs, by philosophers, mystics and engineers. There were reports that in the process of negotiations, Iran drafted in the country’s top psychologists to craft messages to appeal to Trump’s ego and vainglorious personality. It appears to have worked. ............
Iran has sketched out two futures for the US and it now has a decision to make: stand behind the deal which Trump has loudly proclaimed as necessary to save the world, and force Israel to stand down, or let Israel dictate the process, return to war and drag the world into an economic depression. Anything is still possible, of course, but I judge the latter extremely unlikely.
And Trump, in his egotism, venality and conceited self-interest, might just be the man for the moment.
What I do know is that those Iranian psychologists have some more work to do.
Are we in a pre-war state? Undoubtedly yes, and what further complicates the picture is that the threat of global war is combined with two other threats: the ecological catastrophe and the domination of Artificial Catastrophe. So how are we to react to this threat? The first thing to abandon is the pragmatic “realist” view (we still have choices…) and accept that it is necessary that there will be a global catastrophe, our entire history moves towards it, AND that it is necessary that we act to prevent it. In a collapse of these two superposed necessities, only one of them will actualize itself, so that in any case our history will (have) be(en) necessary. ..........
Our ultimate horizon is what Dupuy calls the dystopian “fixed point,” the zero-point of nuclear war, ecological breakdown, global economic and social chaos, etc. Even if it is indefinitely postponed, this zero-point is the virtual “attractor” towards which our reality, left to itself, tends. The way to combat the future catastrophe is through acts that interrupt our drifting towards this “fixed point.”[1] The only ethico-political imperative is thus a negative one: the plurality of today’s crises makes it clear that things cannot go on the way they are now. How we proceed is a matter of risk and improvisations. ................
This, according to Dupuy, is also how we should approach the prospect of a military catastrophe: not “realistically” to appraise the likelihood of the catastrophe, but to accept it as our fate, as unavoidable, and then, on the basis of this acceptance, mobilize ourselves to perform the act which will change destiny itself and thereby open up new possibilities within the situation. Instead of saying “the future is still fluid, we still have time, time to act and prevent the worst,” one should accept the catastrophe as inevitable and then act to undo the destiny which is already “written in the stars”.
Other Fare:
Skepticism used to be an integral part of any liberal arts education. Here’s why we need to bring it back.
............... Massimo Pigliucci, a professor of philosophy at the City University of New York, isn’t surprised at Stoicism’s newfound popularity. A lot of Stoic ideas and ideals — including resilience in the face of seemingly unbearable hardship — emerged during times which, like our own, were marked by “chaos, turmoil, and major political and social changes.” When the world appears to fall apart, Stoicism promises a way to prevent yourself from falling apart with it.
But Pigliucci also has a bone to pick with Stoicism, both the philosophy itself and its internet-age bastardization. That’s why, in his latest book, How to be a (Happy) Skeptic: The Power of Doubt in a Meaningful Life, he points readers to another ancient school of thought, one related to (yet not nearly as fashionable as) Stoicism, and which may be uniquely suited to deal with the problems we face today, both individually and as a society. ......................
Britain's Greatest Betrayal: The Rape Gang Inquiry Report
Rupert Lowe’s Rape Gang Inquiry Report opens with two quotations before a single piece of evidence is presented.
The first is Albert Einstein’s observation:
The world is a dangerous place to live, not because of the people who are evil, but because of the people who don’t do anything about it.
Human history has always contained violent and predatory men, every society has had to confront them, punish them, and do its best to protect the innocent from them. That is a perennial feature of the human condition. Yet the significance of Einstein’s quote is that it shifts our attention away from the perpetrators alone and towards those who witnessed wrongdoing and failed to stop it. This report is so horrific because it illustrates how people who were supposed to protect vulnerable children failed to act. The report argues that those crimes became possible on such a scale because too many others looked away.
The second quotation is from Friedrich Nietzsche:
Man is the cruelest animal.
Nietzsche explains the existence of the perpetrators, Einstein explains the existence of the scandal. Throughout the report, readers encounter testimony describing acts so degrading and sadistic that they transcend ordinary criminality. This article will start with one such story. .............
Fun Fare:
hat tip: IW
From Kafka’s “The Trial” to Orwell’s “1984”
Pics of the Week:
