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.