The Race...

The Race is on.  

Every.  Single.  Angle. is being deployed in championing AI/SI to the finish line of IPOs and further financing.  The depth and breadth of the campaign would be mind-boggling if it was not commensurate with the financial numbers (the WSJ today reports 750 Billion in compute investments from Anthropic alone) involved and the ownership of them.

From essays that claim individual cells in neural networks are on the verge of interpretability, to suggestive governmental regulation that would erase small lab competition, to "The End of History" missives with Anthropic investors and celebrity historians regarding the transmogrifying nature of the technology and its importance for the future.  The coordination is amazing.

The Foreign Affairs article listed above is telling and gives away the plot:

𝘛𝘩𝘦 𝘥𝘦𝘤𝘪𝘴𝘪𝘷𝘦 𝘲𝘶𝘦𝘴𝘵𝘪𝘰𝘯 𝘪𝘯 𝘵𝘩𝘦 𝘤𝘰𝘯𝘵𝘦𝘴𝘵 𝘣𝘦𝘵𝘸𝘦𝘦𝘯 𝘉𝘦𝘪𝘫𝘪𝘯𝘨 𝘢𝘯𝘥 𝘞𝘢𝘴𝘩𝘪𝘯𝘨𝘵𝘰𝘯 𝘮𝘢𝘺 𝘵𝘩𝘦𝘳𝘦𝘧𝘰𝘳𝘦 𝘯𝘰𝘵 𝘣𝘦 𝘸𝘩𝘰 𝘢𝘤𝘩𝘪𝘦𝘷𝘦𝘴 𝘢𝘳𝘵𝘪𝘧𝘪𝘤𝘪𝘢𝘭 𝘨𝘦𝘯𝘦𝘳𝘢𝘭 𝘪𝘯𝘵𝘦𝘭𝘭𝘪𝘨𝘦𝘯𝘤𝘦 𝘧𝘪𝘳𝘴𝘵, 𝘣𝘶𝘵 𝘸𝘩𝘰 𝘤𝘢𝘯 𝘣𝘢𝘯𝘬𝘳𝘰𝘭𝘭 𝘵𝘩𝘦 𝘳𝘢𝘤𝘦.

Thus, a Cold War analogy of civilizations (East vs West) and AI business models (Open vs Closed) is used to substitute analysis of the discounted value of future cash flows for a business into the battle of Epistemology itself for all humanity.  Subtle.

At this point I expect a claim that an LLM can "at some point in the future" (hey, only 2 years away to AGI!) destroy civilization then travel back in time and create it again in its own image...whatever that is...just for "fun".

Anthropic shows its hand...

Within the span of a few days (which included some volatile AI sector action), Anthropic has directed its narrative.

Rumor has it that it now seeks a 1.5 T valuation (down from 2T) in the wake of an investor meeting discussing a proposed S1 Prospectus.  The salient point is that the S1 will show the increase of the increase in growth is slowing by 100% points. (3QoQ revenue growth was down >100 percentage points (44%) vs Q2 (146%).

So, a valuation decrease of 500 Billion based off the perhaps unexpected drop in growth.  A nice round number.

But wait, there is more.

In a nice PR stunt, Anthropic will "donate" 5% of its shares to a charitable fund.  The fact this fund will be an LLC residing within anthropic with no details about how the funds are to be used or irrevocability, management, etc. is left for the future.

But wait, there is more.

Anthropic is seeking regulatory oversight for large LLM players, citing its own proposals here.  

Quite the few days of appeasement, olive branches, and regulatory capture eh?

This is Fine...

For those keeping score: Six U.S. companies now represent nearly a quarter of the worlds investable public-equity market, as measured by MSCI ACWI (All Country World Index). Nvidia Apple Microsoft Amazon Alphabet Meta. Now, as a thought experiment, let's say that both Anthropic and OpenAI IPO at the "Mathematically Correct" amounts of 2 Trillion and 1.5 Trillion (let's ignore the free float here for posterity/expository reasons), respectively, and let's just say they are eligbile for inclusion in the ACWI. That makes 8 (eight) companies who play in the same sandbox and subject to the same economic cycle comprising 26% or so of the entire world's investible equity markets. Those 8 (eight) companies would be "larger" (again, market caps are a bit misleading here but hyperbolics are warranted in this of all cases lol) than the combined weights of Japan, the UK, Canada, China, France, Germany, Switzerland, Taiwan(!!?? recursivity NVIDIA???), and Australia. I honestly don't know if I should scream USA! USA! USA! or mumble "This is Fine..."

WWTD?

 Teddy Roosevelt would have looked at the current AI regulatory imbroglio and decided: "You want a governmental regulatory backstop and presumptive (small?) guarantee of US financial backing that lowers your risk pre and post IPO? Excellent. You are now a subsidiary of the Dept. of Energy and are public utilities. Equity holders will be compensated at current market valuation - this of course surrenders future gains, but let's just balance that vs. extinguishing all future IP liability from "training" and call it a day." Of course, things are far too complicated for that to happen today, which is by design. Great move (and timing) to entreat the world for safety, etc. l With the Frontier firms in fuill IPO promotional frenzy, its also telling that the signal/noise ratio is blowing up.

Straits and Rails...

 In this episode of "Straits and Rails"...

Anthropic/OpenAI: We should slow everything down. Our cost of capital is rising and debtholders are asking questions. Engage The Clerisy and manage optics. Double trouble for any scrappy competitors if the Fed is raising rates AND we achieve regulatory capture. 

The (Intellectual) Clerisy: Great! Thanks for the business! But why slowdown? We are expert historicists and see no issue here because it's different this time. Trees grow to the sky!?

Anthropic/OpenAI: Let's go with AI will kill us all by 2030. UNLESS responsibility, reason, and a very large regulatory moat prevails. 

The Intellectual Clerisy: Thanks for the talking points. Narrative received. Engaging our Press and Government friends. Any particular Think Tank you want writing the regulations written by you in their white papers?

Press: Thanks for the business! (sound of virtual printing press running "Doom to Humanity" 24/7) This should get us through this week's news cycle. Then on to midterm elections!

NVIDIA: Guys wait. We should talk about this. The more you buy the more you save! How could you be losing money? Also, any way to heighten security around the Taiwan Strait until TSMC Arizona II is fully on-line? 

U.S: All going "exactly" as planned. All that remains is to convince China that the AI arms race is more important than the Taiwan Strait and we expect the same results as the last Cold War given China's centralized ownership of its banking system and creaking real estate sector. Nobody wins a "keep up with the Jones's" race with us. Time for a meeting to discuss Guardrails and friendship! TSMC Arizona II will come online in 2027. This gives us options and chip security.

China: This is it! Full steam ahead! We will convince our US friends that we are committed to safety, but in reality, will outspend them for more data and more compute. Huawei, get on it! Call Russia for more oil and all the things mined from the earth! Also, NVIDIA...can haz plz Blackwell??? We promise we will abide whatever licensing agreement you wish, just like we did the other times we bought foreign originated technology.

NVIDIA: Exactly. "More" is the mathematically correct strategy in the AI race. How many would you like? (subject to U.S. Approval, of course. Could take years...maybe you just stick with whatever Huawei can come up with)

Russia: ¯\_(ツ)_/¯ plus ça change...ok, we have our own problems, and we need you to buy our oil and rare earths, etc. Good luck though. Hopefully your datacenters don't turn into glorified Cold War museums like our Nuclear Silos. Also, can we be paid in Drones? The Strait of Hormuz has supply chain issues for Iranian ones...

Instant feedback mechanisms in the Middle Kingdom...

Subtle.  Very subtle...and there is nothing Russia can do about it given it's increasingly precarious position.  Sell at cost (or at a loss) to keep the wheels greased in the East while ceding territory in the West.  Such is the power of a defacto monarchy - you can ignore market signals (both financial and political) so long as the local populace is controlled.

One wonders If Ukraine has a plan to retaliate for Russia's targeting of water supplies.  Either direct action (eliminating potable reservoirs/distribution systems) or indirect (attacking arable land/farming concerns)...but unlike the movie (the screenpic above) "Red Dawn", it appears unlikely that Russia will have any ability to capture land as a countermeasure.  

Four years of war and economic isolation have reduced the Russian president to a supplicant in a relationship growing more imbalanced -- and at times tense.

Before Putin made his 14th trip to meet with Xi in China, he publicly signaled that the two countries would strike a breakthrough agreement on energy. Indeed, his May visit had no bigger ambition than persuading Xi to greenlight a second natural-gas pipeline between Russia and China -- known as the Power of Siberia 2, a project two decades in the making that Moscow desperately needs.

But the Russian delegation that flew to Beijing ahead of Putin ran into a brick wall. Chinese officials made it clear to the visiting head of Gazprom, Russia's state-owned gas giant, that they would sign up to the pipeline only if Russia sold them gas at the same lower-than-market rate Moscow sells domestically, said people with knowledge of the talks. In essence, Beijing was asking the Kremlin to subsidize the project.

Driving home their point, Beijing's officials told the Russians not to raise the issue again until the terms changed, the people said.

A day later, Putin left the Chinese capital having signed 42 agreements and joint declarations. The pipeline deal wasn't among them. Beijing offered no public explanation.

"Xi received Putin like an emperor receiving his visitor in his castle," said Joerg Wuttke, a veteran German business executive with long experience in China-Russia relations, "and sent him home."

Readers here...

 ...are not suprised at the spike in Vol.

Still has some time before weak hands get forced out.

"Why take a chance?" - Cleaning House in the Middle Kingdom

There is a scene in the movie "Casino" that ushers in an incredibly violent motage that focuses on "cleaning house" (eliminating anyone who could testify or cooperate with law enforcement, aka "rats")

Life imitating art.  Who knows how many are compromised and Xi Jinping must be uttering "why take a chance" under his breath...

By Foster Wong and Josh Xiao
(Bloomberg) -- China removed nine military lawmakers from
its national parliament in the latest sign that President Xi
Jinping’s purge of key defense establishment personnel continues
to widen.
The country’s top legislative body revoked the membership
of Ground Force Commander Li Qiaoming and Information Support
Force Political Commissar Li Wei, along with seven other
military officials, during their two-day meeting this week,
state-run Xinhua News Agency reported on Thursday citing a
notice from the National People’s Congress Standing Committee.
The dismissals from the 14th National People’s Congress
include Ground Force’s Ding Laifu; Central Military Commission’s
Bian Ruifeng and Wang Donghai; Navy’s Shen Jinlong and Qin
Shengxiang; Air Force’s Yu Zhongfu; and Rocket Force’s Yang
Guang, according to the report, which didn’t provide reasons for
the removals.

Volatility (part N)

 More of the same and see previous posts for the timeline I expect.

Volatility...

 The Recapitulator believes the Ides of March will herald the return of volatilty, which is looking rather cheap in that context...

VIX get 19% increase today...

 ...on a holiday no less.  More pre-shocks.

Minnesota Fraud and Trust/Non-Trust societies

TLDR:  Justice moves arithmetically and retrospectively. fraud moves exponentially and contemporaneously. This is a problem for the United States.

The Recapitulator resides a town over from downtown Minneapolis, which is suffering from all sorts of issues at the moment but I will discuss "Justice" a bit here.

One of the challenges with Western Society importing immigrants is the issue of a low-trust vs. high- trust design for the prevailing Justice System.

The West is culturally a high-trust Justice System design. This is based on cultural values which assume "honesty" in the community as a whole and dishonesty as relative outliers. Because this is the assumption many safeguards and guardrails are built into the investigatorey and prosecutorial arms of the government. These act as checks against government power.

This system also relies upon rights, responsibilities, of citizens and controls upon authorities to limit power and enforcement. There is a presumption of innocence. Social enforcement of dishonesty is also purvasive. If one is known as "dishonest" in this space, one's opportunities are truncated and one risks being a pariah.

Conversely, low-trust justice systems assume transactions are arms length, fraud and deception are part of the game, and participants should dispense with long-term social punishments.

Minneapolis in particular serves as a particularly good laboratory for what happens when low-trust communities are imported into a high-trust Justice system designed on cultural norms based on honesty.
Justice moves arithmetically...and fraud (including political fraud and collusion) moves exponentially

Given the resource drain that investigations, prosecutions, and convictions demand, scaling up fraudulent operations acts as instant insulation from future enforcement. The process of gathering evidence, prosecuting, etc., etc. makes the US Justice system powerless to combat low-trust populations for the most part if efforts are coordinated and allowed to scale. A first-mover advantage.

For example, the largest RICO (Racketeer Influenced and Corrupt Organizations Act) case in US History, US vs. MS-13, the number of defendants topped a whopping 73 people. From indictment to sentencing took approximately 8 years.

The possible Defendants of the Fraud in Minnesota could number 2-3 orders of magnitude greater than this, putting immense pressure on a high-trust Justice System designed to limit Governmental power, which of course is not accidental.

All of this puts pressure on a Justice System based on high-trust cultural values. And therein lies problems, with future "solutions" that would be terrifying if they were not already in motion.

We are hurtling towards near-omniscience with AI driven surveillance systems. A possible sollution to the inherant scaleability problem above would be to eliminate some of the safeguards associated with a high-trust Justice system in the name of expedience.

The ramifications on culture are obvious. And its interesting to note the experiment of expecting instutions fo change cultures by moving populations from low-trust to high-trust locales has failed. And yet, the solution may harken a different, perhaps even more complicated and dark moment for "Justice".

I can hear the "solution" now...

"Have some issues with exponentially expanding fraud in light of an arithmetically limited Justice system? Sure we can build an app for that! But it will not involve the Courts...or Congress. All we have to do is remove the guardrails. We can always replace them if it does not work right?"

Boots on the ground Economic perspective in Venezuela...

 As a preface, all the VZ friends of The Recapitulaltor have applauded the US action.  Again, dear readers, its not like the Monroe Doctrine was not invoked before...by Democratic Presidents...

The Obama Doctrine

So this snippet is a microcosm.  On a more amusing note and as a person living in Minnesota, it does seem a strange confluence of things leading back to here (Walz, fraud, etc.  Cargill is headquartered here)

https://x.com/agrisacademy/status/2008280244105380254

Cargill was/is the leading producer of critical staple ingredients such as flour, pasta, vegetable oil, and rice in VZ. I am not saying I agree with grabbing the dictator, but I did have a front row seat to the damage a kleptocracy did to innocent people.

Capture or Rescue?

 Not to be "too" cynical, but given the ovewhelming success and obvious intelligence "assistance" (read: omnipotence) during the capture and extraction of Maduro, one has to wonder if he reached out to US assets for a "rescue".

It's a low probability, but given the nature of this administration and its proclivity for decisive action and opportunism, one wonders.

Still, the entire exercise serves notice to the world that the margin of military superiority is even further than previously thought.  VZ had fairly modern defense systems that were rendered useless within an hour.  Zero casualties and zero war assets damaged on the US side for an operation that invaded a country with Billions of dollars in military equipment and plucked its sitting president away.  Incredible.

But the fog of war creates its own opportunities, and I am curious to see what else (if ever released) was happening.  If nothing else, Trump is very, very good at simultaneity and I have always been curious if this is planned or simply evolved organically from making decisive moves and reacting/adapting to the outcomes.  Given my belief in public choice theory, I "think" its the latter.

Venezuelan Testing Grounds and a warning to China.

The recent US action in the Caribbean serves many purposes.  The "1st Order" being a resurrection of the Monroe Doctrine mentioned in the blog before as an opportunistic tool for the incumbent POTUS to wage proxy wars against our enemies in this hemisphere.  The 2nd order effect is a warning and demonstration to China that they are outmatched in the Taiwan straights and will be for the next 30 years (at least - by which time China in its current manifestation will have fallen)

I have written about this before many times.

And now Mr. Trump has seen fit (in a moment of domestic weakness) to deploy it...not only as leverage on petroleum assets but as a demonstration of US capability extrapolated to other theaters.

The USS Gerald R. Ford is in the South Caribbean right now.  It is the greatest, most technologically advanced ship in the history of man.  It's nearest competitor is decades behind and 3 more Carriers in this class are expected to be delivered in the next five years...and its only pulling further ahead in its capabilities.  Rail Guns, Solid State lasers, hypoer advanced guidance systems, etc.  All are on the table for the Ford class once solidly developed.

The only issue it has is combat testing - it has not "officially" seen combat, which is generally left to the old battlehorse Nimitz Carriers.

The South Carribean sea (where, somewhere, the Gerald R. Ford currently patrols) is approximately 1.1 Million square kilometers.

The Taiwain Straight combat area (the location of likely naval conflict between China and the US) is approximately 1.2 million square kilometers.

So, boats the size of small sail boats can be located, targeted, and destroyed in an area of 1.1 million square kilometers.  There is no-where to hide. 

Larger boats would be even easier targets, such is the gap in US nautical and air superiority.

 It is "offically" unknown where the air strikes are coming from, but in terms of capability in a large theater, the CPC has been served notice.  There is simply no counter (blah blah Exocet Missile and blah blah Torpedo.  Neither would get a nautical mile close to the Ford before being disintegrated) to a Ford class Aircraft Carrier Group parked anywhere in the Carribean...or the World.

So batting practice for the Gerald R. Ford has begun, and I am sure some folks are eager to see it hit some home runs vs. Venezuela. 

So where are the other (Nimitz) Carrier groups?  Guam.  Near Taiwan.  Near the Taiwan Straight combat area.

The dots connect themselves.

 

Time elapses arithmetically...

 ... but AI generated "news" can expand geometrically (well, before the combinatorial explosion, anyway).   The increase of identity politics across the world is noticeable in this regard.  

Fake report of French ‘coup’ goes viral — and fools African leader

2025-12-18 18:33:19 GMT

(The Times)

President Macron has revealed that he was contacted last weekend by an African

president worried about a coup d’état in France after seeing fake news on

Facebook.

Macron accused Facebook of undermining democracy by refusing to delete the

fake television news report, made with the help of artificial intelligence by

a 17-year-old boy from Ouagadougou in Burkina Faso.

The video was viewed more than 16 million times before the author removed it

himself after an outcry in Paris.

The video, which featured a fictional journalist in Paris talking about a

“coup d’état led by a colonel whose identity has not been revealed”, was

highlighted by Macron in a question-and-answer session with readers of the

regional newspaper La Provence in Marseille on Tuesday.

 And, here we are.

This is an opening act.  I expect the headliner to begin in March '26.

No one has any idea how revenue will comport with current AI valuations.  I agree that it has great potential for just about "any" industry, but that transformative process will take much more time than some anticipate ("all customer jobs will be replaced by 2030, etc. etc.)
  

Ai giveth...

 ...and taketh away...

"Every time we list a job posting, we get 100 North Korean spies applying to
it," Infante said. "When you look at their resumes, they look amazing; they
use all the keywords for what we're looking for."

Fake job seekers are flooding U.S. companies that are hiring for remote positions, tech CEOs say – NBC New York

Trump, China, and Nobility vs. Bourgeous virtues...

 As stated here before the following moves:

China counters with a "34% retaliatory tariff".  This is a bluff and too strong of a move.  They will be forced to the negotiating table within 3 months once the fallout from the US actions take hold.

Trump embodies a shift to "Nobility" virtues (courage, loyalty, hospitality, honor to a select few), etc.  These are much different than the Bourgeois virtues the world has come to expect from the US in the last 50 years.

I am ambivalent regarding the absolute value of the above virtues, and merely express that this is a sea-change for international relations, and will be interesting to see how these actions play out given the US recipe for dealing with competitors:

Cooperate, Assist, Tolerate...then suddenly...violently...Compete.

One of the overwhelming strengths of the US is its ability to adapt and change, both on socio-economic and political levels, and the SPEED which it does so.

One wonder how the CCP will attempt to mirror this given very little institutional/cultural memory on how to digest what is coming.

This "all" about China.  And this is also why Russian peace is important.  Japan to the East, Russia to the North, and Australia to the South.  

Meanwhile...an important signal amongst the noise...

 While every news outlet is making sense of "reciprocal tariffs" and the resultant ramifications, a credit rating service (yes, I have railed against them in the past so this is to be taken with the usual cautions) downgrades the Paper Dragon.  Note the "rising public debt" trajectory" language.

Managing the political and social fallout from the coming 3-5 quarters of chaos will be a tall order for the CCP.  

Yuan Falls Versus Dollar as Fitch Downgrades China’s Rating to A

2025-04-03 12:45:46 GMT

By Nour Al Ali

(Bloomberg) -- The Chinese yuan fell further against the US

dollar, underperforming all major peers, after Fitch downgraded

China’s rating to A from A+. The outlook is stable.

Fitch said the downgrade reflects their “expectations of a

continued weakening of China’s public finances and a rapidly

rising public debt trajectory.” Meanwhile, China pushed back and

said the downgrade does not fully reflect the country’s economic

recovery momentum, calling it “biased”.