DeepSeek/AI
I’m not smart enough to tell you what to think about DeepSeek R1, but you are supposed to think about it.
The Chinese have released an open source model that is as good/maybe better than OpenAI and Anthropic’s best models for reportedly $5.5mm in development costs, using Nvidia H800s (the throttled export controlled chips). Further, user costs are 95% lower for R1 (DeepSeek) than O1 (OpenAI). Anyone can download R1 and apparently it runs well on a variety of non-cutting edge chips.
Everyone that has been running around saying AI is our Manhattan Project and we need to hyperscale data centers to beat the Chinese needs to take a deep breathe.
Either the Chinese are lying and have gotten ahold of a bunch of the top of the line Nvidia chips or they have out America’ed Silcon Valley with a flexible can-do approach.
Even today Zuckerberg re-upped Meta’s hell bent on election approach to AI capex and the stock was up. But maybe hyperscaling isn’t how you enter AI nirvana, maybe it’s just a waste of money.
If you want to spend way too much money on a technology project, and give the people investing the money a remarkably small share of the enterprise, you definitely want to be giving Masayoshi Son and Softbank a call.
On DeepSeek’s R1. Releasing the model open-source feels crunchier and more libertarian, but is actually pretty scary as we approach AGI.
r1 is an open model, and it comes in dramatically cheaper than o1.
If you think AGI and then ASI are coming, and you want humanity to survive and retain control over the future, and are fully cheering on these developments and future such developments, and not at minimum thinking about how we are going to solve these problems and noticing that we might indeed not solve them or might solve them in quite terrible ways, I assure you that you have not thought this through….(And no, I don’t think this release was part of a CCP strategy, I do think that they continue to be asleep at the wheel on this, the CCP don’t understand what this is.)
How small Chinese AI start-up DeepSeek shocked Silicon Valley
How much economic growth from AI should we expect, how soon?
If there is more extensive automation in some sectors, the price of goods produced in that sector will fall, and so that sectors’ share of GDP (total output) grows less. This means that GDP ends up being composed of things which are essential, and yet hard to automate. Agriculture used to be 90% of GDP, but since mechanisation, it has shrunk as a fraction of GDP, to just 0.8%. Total output is bottlenecked by that which is essential — healthcare, education, housing — but hard to automate! This is known as the Baumol effect.
The important things to keep in mind when considering any automation are: how much does this automation directly reduce costs, and to what extent is output bottlenecked by this, or another factor?
Prior to true AGI, how is AI ever going to be good business?
Maybe I'm paranoid, but I think there's a good chance that Altman is only spreading this belief that he needs a trillion dollars simply because he wants a trillion dollars. And all these VCs, and Trump, are falling for the psyop. Altman knows better than anyone that the true number one role of the modern tech startup CEO is that of a fundraiser. And, love it or hate it, he who raises the most money—through charisma, networking, appearances on pseudo-intellectual podcasts that rile up the normies, etc.—is the one who wins in the Valley, even if most of the money gets torched in the process. Just ask Adam Neumann and Masayoshi Son.
Econ/Markets
Erdogan Redux: Trump’s Self-Defeating Mix of Tariffs and Demands for Lower Interest Rates
Every time President Trump amplifies his “I love tariffs” rhetoric, U.S. Treasury yields have tended to rise.
This is no coincidence. The U.S. trade deficit is effectively mirrored by foreign financing of the American budget deficit. If international trade collapses due to aggressive tariff policies, this crucial source of financing also dries up.
The logical result? Treasury yields will skyrocket as the U.S. government is forced to rely more heavily on domestic financing to cover its deficits.
Trump’s insistence on lower interest rates—if imposed through pressure on the Federal Reserve—would be akin to trying to plug a financial dam with duct tape.
This is, I think, the important piece of news: Bessent has staked out a position that people should take Trump’s bloviating about interest rates and inflation as the unserious letting-off of steam, rather than as a guide to what he will seriously try to make monetary policy be.
So my advice to you who are not deeply steeped in Fed watching is this: from now on, as long as Rupert Murdoch, Lachlan Murdoch, and Emma Tucker are in place—and, probably, a lot longer—read Nick Timiraos’s stories from bottom to top. You will learn more. And it will be truer.
America, China, and the Death of the International Monetary Non-System
The extremes of interest rates, debt levels, asset price valuation, and investment in tangible assets in the United States are just part of that global adjustment to the new international monetary system that grew from China’s unilateral decision to manage its exchange rate beginning in 1994.
The crucial distortion imposed by China’s decision in 1994 was a decoupling of developed world growth rates from interest rates, the discount rates used in asset valuations, which many assumed to be a new normal. When interest rates appear to be permanently depressed relative to growth rates, asset valuations rise, leverage increases, and investors are incentivized to pursue gain through rising asset prices rather than through investment in new productive capacity.
The world has never seen anything like the fixed-asset investment boom that this new international monetary system facilitated. The value of China’s fixed-asset investment increased from $360 billion in 2000 to $7.9 trillion by the end of 2022.7 China’s gross capital formation, already high at 35 percent of GDP in the mid-1990s, facilitated by the liquidity created as part of the exchange rate management program, rose to its current 43 percent of GDP.8
The country has falling property prices, falling producer prices, consumer price inflation just above zero, and significant distress in its credit system. Have we finally reached the stage at which the international monetary system, anchored upon China’s managed exchange rate regime, no longer works for China?
Is China in a Balance Sheet Recession?
Taken together, the data suggest that China is experiencing a slowdown coupled with notably low inflation, particularly in the real estate market. Nonetheless, these conditions do not perfectly align with the classic, all-encompassing hallmarks of a balance sheet recession. Rather than a universal deleveraging mentality—and widespread asset-price depression—China shows pockets of stress alongside areas where activity is still moving forward.
Trump 2.0 is a hodgepodge of distinctly American political strains: the bare-knuckled nationalism and anti-elitism of Andrew Jackson, the tariff-loving protectionism of William McKinley, the small-government/pro-business policies of Calvin Coolidge, the unforgiving enemies lists and vendettas of Richard Nixon, the deportation policies of Dwight Eisenhower, the manifest destiny of James Polk and the isolationism of 1914-era Woodrow Wilson (yes, there are apparent contradictions in Trump’s agenda). American First policies create risks for investors since its supply side benefits collide with its inflationary tendencies; there’s not a lot of room for error at a time of elevated US equity multiples.
Global Economies Converging on Equilibrium Confront a Geopolitical Regime Shift. Bridgewater outlook.
In the US: Short-term cyclical dynamics are sustaining nominal spending at too-high levels, while the advent of mercantilist policy (e.g., tariffs, targeted fiscal measures, restrictions on immigration, stimulus in China) tilts the risks of inflation higher.
In China: Deflationary pressures from the long-term debt cycle are weighing on credit growth, leading to very weak nominal spending, which is too low by about half. Stimulus is needed to transition from what is now an ugly deleveraging, which is good for bonds but bad for just about everything else, to a beautiful deleveraging that stabilizes conditions and supports a movement of money from cash to assets.
Europe remains in a state of long-term stagnation, losing the productivity and tech battle to the US and the manufacturing battle to China.
The recent diverging behavior of long and short rates could be called an “augmented reverse conundrum” because long rates rose (did not remain level) when the Fed reduced the FF rate.
In what I called his “Job Market Paper”, Kevin Warsh argued:
“The Fed has lowered rates by a total of one percentage point, starting with an ill-timed emergency rate cut of 0.50% in September. Yet the average 30-year fixed-rate mortgage is currently slightly above 7%, about 1% higher than it was in September. The purpose of cutting rates is to cut rates—clearly, that hasn’t occurred.”
What happens to monetary policy (reflected in NGDP growth) is essential to outcomes. Unfortunately, with people like Kevin Warsh waiting in the wings for the top job at the Fed, I’m not very optimistic!
Under these circumstances, unused discount window borrowing capacity is economically equivalent to a reserve balance – both are promises of a Federal Reserve Bank to provide funds on demand in the future. Dry powder at the discount window is just as liquid as cash at the Fed, but less costly for the economy because it doesn’t take up bank balance sheet capacity. Because the unused capacity is free, discount window borrowing would be an attractive alternative to voluntary reserve balances. Because banks could devote less of their balance sheet to deposits at Federal Reserve Banks and more of their balance sheet to lending to businesses and households, the arrangement would contribute to higher GDP without compromising bank safety and soundness or financial instability.
I allow that crypto is not guaranteed to survive, and there’s a chance - if in my view a small one - that it ends up as the early 21C’s equivalent of tulips. However, I reject the idea that cryptocurrency as a concept is a scam. Credibly decentralized blockchains are by far the most rigorous framework for property rights in the digital realm. My fundamental logic is that as an ever greater share of the world’s product accrues to it - a process that will be turbocharged by AI - the value of quality crypto assets should trend inexorably upward.
Crypto’s Perpetual Motion Machines
FartStrategy was created to accumulate as much Fartcoin as possible. Hot air rises, and FartStrategy will ride that hot air to generate value for both Fartcoin and $FSTR holders.
“If the total market cap of $FSTR trades significantly above the total value of its Fartcoin holdings,” it says, it will sell tokens to buy Fartcoin, “thus accelerating the ‘Fartcoin Flywheel.’” One of the readers who sent it to me called it “sublime and transcendent nihilism,” and I can’t really improve on that.
Foreign
Britain urgently needs a credible plan to get economic growth. This isn’t “just” about people’s living standards or the quality of public services anymore: British government borrowing costs have been rising this year as financial markets have become increasingly pessimistic about the British economy’s prospects (and hence the government’s ability to repay its debts).
Finding Fair Prices in Gresham’s Paradise
In a key step towards a dollarized economy, the Central Bank of the Argentine Republic (BCRA) approved a regulation that will allow businesses to accept payments in dollars with debit cards.
This step is in line with Milei’s strategy of currency competition, which some media outlets have started to call endogenous dollarization:
“The current approach — dubbed “endogenous dollarisation” — entails curtailing the supply of pesos, forcing Argentines to use their dollars to pay for everyday expenses. Over time, that’s supposed to increase the amount of dollars in circulation and reduce reliance on the peso, which has lost 62 percent of its value since Milei took office.”
According to some estimates, Argentines have about 8+ Central Banks tucked away under their mattresses, to the tune of $261 billion dollars, and over $400 billion dollars in undeclared funds offshore.
Cash-Rich Ukraine Is Future-Proofed (for Now)
In addition to this, the National Bank of Ukraine has now accumulated record foreign exchange reserves of around $46bn. President Zelenskyy’s government hence has a potential war chest of close to $150bn regardless of any new decisions made in Washington.
Set against annual budget/balance of payments of $40bn billion, total funding needs of $100bn as per disbursements to date, Ukraine should be able to fund itself until well into 2026.
Politics/Culture
Spreadsheet tracking every Executive Order and The Ultimate Guide to Trump’s Day 1 Executive Orders
Choose your own adventure: Trump’s Immigration Orders Will Bring Chaos to the Border, or Why There Won’t Be a Deportation Apocalypse
Is Heartland Talent Repressed?
I have found in my businesses that it is not difficult to find 99th percentile talent (as objectively measured on reasoning tests) among non-elites in the heartland, as our economy is massively inefficient at identifying and developing talent. With the death in the early 1970s of IQ testing for entry-level employment due to disparate impact concerns, white-collar employers were forced to launder their need for objective talent identification through higher education.
Chicago Casino Investment Offering
It has everything: echoes of the culture that is the American PMC 2020-2024, complex financial structuring, a novel web application to move money, a crypto company in the background, and municipal politics. So it seems squarely within this column’s beat.
The municipality happens to be Chicago, my hometown and (after a 20 year stint in Japan) current residence. And so I feel some sense of civic duty, as a Chicagoan, taxpayer, and reasonably financially sophisticated person, to say the following publicly: What the hell, Chicago?
Anti-Discrimination Law Has Proved Counterproductive
To eliminate all differentiation along the dimension to be equalised—as equality of outcome requires—is to police, to control and, by attacking and trivialising the complexities that make us, us, to dehumanise. Equality before the law is a principle of fairness precisely because it does not block treating people as they are, as they reveal themselves to be.
Equality of outcome has two huge advantages: it is a very simple moral principle, one that any midwit can use to scold anyone, no matter how smarter or more productive they are, or even especially if they are. Moreover, it can never work, so the equalising apparatus can go on forever.
Short Circuit: A Roundup of Recent Federal Court Decisions
Butterfly knives are incredibly cool, but are they also "arms" protected by the Second Amendment? Ninth Circuit (2023): Yes; Hawaiʻi's ban on butterfly knives is unconstitutional. Ninth Circuit (2025, en banc): After we granted en banc review and vacated the panel opinion, Hawaiʻi changed the law to moot plaintiffs' claims. So we don't need to decide that. Dissents: Our practice of granting en banc review and vacating panel opinions whenever a Second Amendment plaintiff wins is encouraging states to strategically moot cases and manipulate our jurisdiction to erase unfavorable precedent, and we shouldn't let them get away with that.
The pointy-shoed corruption of medieval London
The long point was seen as phallic, and the cut around the ankle was saucily low, elongating the leg and displaying the talus bone, often clad in colourful hose to turn the heads of admirers.
According to the London Museum, young men would "stand on street corners wiggling their shoes suggestively" at people walking by.
If that shoe-wiggler had bells sewn to the ends of the points, it indicated that the wearer was available for sexual frolics
Phone Metadata Suddenly Not So Harmless When It’s the FBI’s Data Being Harvested
the FBI and NSA spent years pretending the fears expressed by activists and legislators were overblown. Officials repeatedly claimed the information was of almost zero utility, despite mounting several efforts to protect this collection from being shut down by the federal government. In the end, the phone metadata program (at least as it applies to landlines) was terminated. But there’s more than a hint of egregious hypocrisy in the FBI’s sudden concern about how much can be revealed by “just” metadata.
Science/Health
How Sleeping Pills Interfere With the Brain’s Internal Cleaning Mechanism. Probably don’t take Ambien.
Why Aircraft Carriers Are Becoming Obsolete
Intriguingly, however, the Russians have quietly developed a technology that fulfills the mission role of an aircraft carrier but would not suffer from these drawbacks. This technology would not be fully immune to new missile technology; a case can at least credibly be made that it is resistant to it. Moreover, this technology has been ignored and understudied by Western defense analysts for years—yet it is widely known to them and effectively hides in plain sight.
The technology I refer to is the Lun-class ekranoplan. This was first designed in the Soviet Union by visionary engineer Rostislav Alexeyev and was in service for a few short years between 1987 and the early 1990s, after which it was mothballed. The “Caspian Sea Monster,” as it was affectionately named by Western analysts, was rotting in the sea it was named after before it was tugged to the city of Derbent in the Russian republic of Dagestan in 2021, where it now sits as a museum piece.
ExThera’s Cancer Blood-Filtering Device
Some Interesting Open Problems in Technology
Small thermodynamic engines. Batteries suck: they have mysterious chemistries, and the best ones use elements not common in the earth’s mineral content, which have problems like occasionally catching fire in spectacular ways. Hydrocarbons are used in cars and by life for a reason: you can’t beat 12,000 Wh/kg using lithium anything (which is more like 200 Wh/kg). Imagine a little heat engine that runs on olive oil or ethanol to power your laptop or phone. Fuel up once a year. Hell make them without plugs. People started thinking about this using MEMS technologies during the nanotech craze of the 90s and 00s. They still think about it, using little turbines and wankels and such. Probably not the right approach, but there might be a way to make these approaches work. There might be better kinds of little engines that are more suited to the scales they function at. Certainly there must be options other than using MEMS and silicon.
Smaller and more accurate atomic clocks. I’m almost certainly going to buy a rubidium maser atomic clock for my computard for the type of thing I do for a living. Also to hook it up to nixie tubes to impress the hoes. Thinking about technological progress, an awful lot of it can be attributed to more and more accurate methods for measuring the passage of time. Hamilton’s clock was a super-weapon for the British empire in the 18th century. For a more recent example, Alfred Lee Loomis was obsessed with this: his breakthroughs in clock technology made his LORAN system, the immediate ancestor of GPS, possible. Better clocks means better physics measurements, including stuff like GPS, but more than that. I think regular GPS promises a couple of meters: not great for, say, helping you drive your car without hitting the other guy. Atomic clocks can reduce the jitter to 100 or 10 cm, which is a lot more interesting. Should work OK in tunnels as well. There’s a bunch of ways of doing this; right now the cheap little atomic clocks are rubidium masers which are a couple of watts in a package size of 2 cm on a side for about 1000 bucks. I could imagine iterating on these, as people have been, but faster. I could also imagine other things; maybe whispering gallery modes (WGM) of iron-sapphire. Maybe someone figures out how to make really small hydrogen or cesium masers. Whispering galleries and WGM devices are more interesting though, as it’s solid state stuff, and it’s easier to iterate on something like that than gas tubes like everything else would be. FWIIW “whispering galleries” were discovered and understood by Lord Rayleigh in St. Paul’s Cathedral, though many ancient structures had them: places where one could whisper at one end of the structure and be heard hundreds of feet away. WGM gizmos can potentially be used for all kinds of ultra precision measurements: pressure, temperature, field sensing, molecular sensing: seems like a good subject for inquiry. Cheap and potentially made at home by individual mad scientists too.
Optical Interposers: The Future of High-Speed Data Communication
The Los Angeles Wildfires Are Self-Inflicted
after 5 years even dry chaparral scrub has accumulated enough biomass to burn well – and it literally takes longer than that to complete an Environmental Impact Statement review. Here’s a more comprehensive list of forests that literally burned down while their forest-protection hazard reduction burns were held up by NEPA reviews, often for 5-7 years! If you’re wondering what the Platonic Ideal of a failed law supported by failed regulatory policy and a failed state looks like – this is it!
The number of exceptional people: Fewer than 85 per 1 million across key traits
This Shot Of USAF Explosive Ordnance Disposal Techs In The Middle East Goes Hard
