1 00:00:00,000 --> 00:00:06,220 Summer in the United States, typically a time for rest, time for reflection, a time to put your phone down, head to the beach. 2 00:00:06,780 --> 00:00:13,780 The headlines just won't let us rest. It's never ending. We're at an inflection point, John, and no rest for the wicked this summer. 3 00:00:14,780 --> 00:00:16,540 I don't know. It sounds like you're thinking of summer in Europe. 4 00:00:17,060 --> 00:00:21,780 Hit that out of office message right after, right when June starts. 5 00:00:21,940 --> 00:00:26,680 Sorry, I'll be back in the middle of September. You can't outreach me until then. 6 00:00:26,680 --> 00:00:32,400 No, but we definitely, we have not gotten the summer doldrums here so far, that's for sure. 7 00:00:32,540 --> 00:00:37,620 Well, imagine what the Europeans are going to think when they wake up in September and they catch up on everything that's been going on. 8 00:00:37,680 --> 00:00:39,840 I'm like, oh, wow, we're really behind here. 9 00:00:43,200 --> 00:00:47,520 Yeah, the old inbox is going to be bursting with some bad news. 10 00:00:48,120 --> 00:00:53,540 Yeah, and they're going to have to filter through all the AI generated emails that have been sent their way. 11 00:00:54,100 --> 00:00:55,580 God bless the Europeans in September. 12 00:00:55,580 --> 00:01:04,500 Okay, good luck. Good luck. But we're not here to belittle the Europeans and their summer vacation lifestyle choices, I think. 13 00:01:04,540 --> 00:01:08,940 I think actually preferable if given the choice. But for some reason or another, we like to grind. 14 00:01:09,080 --> 00:01:12,060 We're here on a Monday morning grinding, going through more charts. 15 00:01:12,240 --> 00:01:15,700 John has curated a list of things to talk about. 16 00:01:15,780 --> 00:01:20,500 And we mentioned this last week. It was news to John, but the news has developed for seven days. 17 00:01:20,500 --> 00:01:24,320 and it has fermented a little bit. 18 00:01:24,460 --> 00:01:25,740 And here we are, Yemen. 19 00:01:25,740 --> 00:01:30,780 I mentioned breaking news last week when we last met that Yemen announced 20 00:01:30,780 --> 00:01:34,500 that they were going to do a naval blockade of Saudi Arabia 21 00:01:34,500 --> 00:01:39,160 in the Bab el-Mandeb straits, I guess. 22 00:01:39,440 --> 00:01:41,500 And that has happened. 23 00:01:41,740 --> 00:01:46,000 And as you can see from this chart that John has curated for us, 24 00:01:46,000 --> 00:01:54,600 This was only after this particular straight has been used as an alternative to the straight of Hermus. 25 00:01:54,900 --> 00:01:59,060 And so it looks like the straight of Hermus is still relatively shut down. 26 00:01:59,300 --> 00:02:10,400 And the alternative in the Red Sea is now a hot-button topic and a hot-button part of the world now with the Houthis getting into the mix. 27 00:02:11,240 --> 00:02:17,160 Yeah, Marty hit me with the old breaking, all caps breaking on the last episode. 28 00:02:17,580 --> 00:02:18,780 So it was news to me then. 29 00:02:19,040 --> 00:02:24,260 But the world's gotten a chance to adjust to it since Marty cracked the headline. 30 00:02:24,620 --> 00:02:38,880 But yeah, I think this was something that, you know, as soon as this kicked off, this whole conflagration earlier this year, the fear was, the thought was, you know, what are these going to do kind of on the other side of the peninsula? 31 00:02:39,460 --> 00:02:41,900 These are historically Iran-linked. 32 00:02:42,160 --> 00:02:47,420 So are they going to cause trouble as well and make shipping out of that side just as difficult? 33 00:02:47,420 --> 00:03:03,940 And there was noise about that over the last couple of months, but it never really took off until kind of last week when there were more direct overt attacks on Saudi Arabian ships and other assets and terminals on that side of the peninsula. 34 00:03:03,940 --> 00:03:09,380 as you said, kind of leading into both the Red Sea, but then also outward on the other direction. 35 00:03:10,480 --> 00:03:16,360 The graph kind of shows a picture's worth a thousand words, but that route had become one 36 00:03:16,360 --> 00:03:21,740 of the main pressure release valves for shipping oil out of the Gulf. So use the East-West pipeline 37 00:03:21,740 --> 00:03:25,940 to get the oil there and then offtake it to wherever it needs to go from there without 38 00:03:25,940 --> 00:03:31,840 being able to be disrupted by Iran that had been responsible for a massive amount of offtake, 39 00:03:31,840 --> 00:03:35,620 millions of barrels. And as you can see on that chart there, which I got from Reuters, 40 00:03:36,080 --> 00:03:40,060 vast majority of that was heading to Asia, different Asian countries, Southeast Asian 41 00:03:40,060 --> 00:03:45,880 countries. We'd probably infer a decent amount was to China, though it's tough to really know. 42 00:03:46,300 --> 00:03:51,560 But this is yet another major crimp in the oil market and potentially, especially for 43 00:03:51,560 --> 00:03:58,460 the eastern part of the world. I think it's questionable whether that's totally seen as 44 00:03:58,460 --> 00:04:05,700 downside to some folks in the Trump administration. But either way, oil prices responded quite 45 00:04:05,700 --> 00:04:11,660 violently last week. Although, as often happens, we're sitting here on Monday morning and kind of 46 00:04:11,660 --> 00:04:16,360 talking about last week's news. And we've gotten a bit of a reversal of this this morning with 47 00:04:16,360 --> 00:04:23,080 both sides deciding they want to give peace another shot. And so oil is down quite a bit 48 00:04:23,080 --> 00:04:24,140 from where it was on Friday. 49 00:04:24,780 --> 00:04:27,540 Yeah, not only has this had an effect on oil prices, 50 00:04:27,740 --> 00:04:30,840 but it has also affected insurance for the ships 51 00:04:30,840 --> 00:04:33,900 that are traversing these straits in the Middle East. 52 00:04:34,360 --> 00:04:36,000 And you have a couple headlines here, 53 00:04:36,120 --> 00:04:37,640 ship insurers restrict war coverage 54 00:04:37,640 --> 00:04:39,880 for Saudi Arabian cargoes in Red Sea 55 00:04:39,880 --> 00:04:43,160 and new Lloyd's Clause could invalidate tankers insurance. 56 00:04:44,320 --> 00:04:46,820 And this was a big topic at the beginning 57 00:04:46,820 --> 00:04:50,020 of the war with Iran, 58 00:04:50,020 --> 00:04:53,200 which is the ships were not really going through the straight 59 00:04:53,200 --> 00:04:55,500 because they couldn't get insurance. 60 00:04:55,500 --> 00:04:58,180 And it looks like that particular thread 61 00:04:58,180 --> 00:04:59,440 is being pulled again here. 62 00:05:00,360 --> 00:05:02,660 Yeah, it's, you know, you're kind of seeing 63 00:05:02,660 --> 00:05:05,900 that whole playbook once again played out here 64 00:05:05,900 --> 00:05:19,836 on the other side of Saudi Arabia with one of the biggest maritime insurers in the world arguably most important insurance entity Lloyd of London And the interesting kind of thing here 65 00:05:19,836 --> 00:05:25,836 is this bellwether of the insurance industry potentially pulling back to some degree 66 00:05:25,836 --> 00:05:31,696 out of this very volatile situation. What does that open up for U.S. insurers to come and fill 67 00:05:31,696 --> 00:05:37,556 in some of the gap and the vacuum. If you recall, back in April, I believe it's the Development 68 00:05:37,556 --> 00:05:43,876 Finance Corporation, which has had its hand in a lot of different strategic initiatives since 69 00:05:43,876 --> 00:05:49,256 Trump 2.0 started, including a lot that we've talked about on the rare earth side. But the DFC 70 00:05:49,256 --> 00:05:56,076 spun up some amount of funding to try to encourage insurers, US-linked insurers, to move into this 71 00:05:56,076 --> 00:06:03,276 market and kind of take some of this business. So I haven't seen an update yet on what share gains, 72 00:06:03,496 --> 00:06:07,516 if any, the U.S. may be able to pull off or U.S. link insurers may be able to pull off 73 00:06:07,516 --> 00:06:13,076 from this retrenchment if this retrenchment even even lasts. But yeah, like you said, 74 00:06:13,296 --> 00:06:19,176 just a noteworthy data point updating on that thread of, you know, the U.S. potentially having 75 00:06:19,176 --> 00:06:24,796 an angle on muscling into the global kind of shipping insurance market. And then you can see 76 00:06:24,796 --> 00:06:31,036 how influential and meaningful that has been already for the ability of ships to get where 77 00:06:31,036 --> 00:06:36,516 they need to go. And given the administration's focus on controlling naval choke points, 78 00:06:36,656 --> 00:06:39,996 controlling shipping choke points, you can kind of see how that puzzle piece would slot in 79 00:06:39,996 --> 00:06:46,296 over time, having greater U.S. influence over the financial infrastructure that facilitates this 80 00:06:46,296 --> 00:06:51,356 kind of stuff happening. So no real data point yet on what this might mean for U.S. insurers, 81 00:06:51,356 --> 00:06:58,136 But I think notable that we're kind of seeing it happen again as this event path plays out on the other side of Saudi Arabia. 82 00:06:59,016 --> 00:07:00,136 Well, I got to put you on the spot. 83 00:07:00,236 --> 00:07:09,356 What is the Dynesian perspective on this and the struggle for dominance over the monetary system? 84 00:07:10,296 --> 00:07:14,616 I can hear Tom Luongo just shaking in his seat, crying, City of London. 85 00:07:14,616 --> 00:07:22,396 But yeah, I think it would probably merit its own podcast. 86 00:07:22,696 --> 00:07:27,936 And frankly, I think Dines and Tom both will do a better treatment of it than either of us will. 87 00:07:28,396 --> 00:07:30,976 But if you don't listen to Mindprint Hash, I don't know what you're doing. 88 00:07:31,096 --> 00:07:31,996 You got to go listen to that. 89 00:07:32,496 --> 00:07:35,696 I would follow Tom Luongo as well. 90 00:07:35,696 --> 00:07:52,796 But basically, there's been the 10,000 foot view thesis is there are a lot of legacy old world institutions, particularly in finance and the offshore dollar system that exert a lot of control and influence over different international systems of trade. 91 00:07:52,796 --> 00:07:59,276 and certain institutions may or may not have a stronger, weaker hand within those. 92 00:07:59,876 --> 00:08:08,396 And this may represent one of those, a sub-theme within that overall control nexus, 93 00:08:08,716 --> 00:08:14,296 influence nexus, where the U.S. and U.S. institutions may have an opening to kind of 94 00:08:14,296 --> 00:08:19,316 muscle in and establish themselves a little more clearly as a key infrastructure partner and a key 95 00:08:19,316 --> 00:08:24,416 finance partner for facilitating a lot of this stuff. So that's 10,000 foot view that I think 96 00:08:24,416 --> 00:08:28,496 colors a lot of what we are tracking here and certainly what Dines and Tom have been tracking. 97 00:08:28,776 --> 00:08:34,556 But I think that's why at the high level, this is interesting. Yeah. Yeah. It is. Pay attention 98 00:08:34,556 --> 00:08:39,856 to these subplots. Anybody who's listening to this, you mentioned it earlier, but we should 99 00:08:39,856 --> 00:08:45,256 dive deeper into a chump. Pauses around strikes as officials weigh dwindling air defense stocks, 100 00:08:45,256 --> 00:08:49,696 even though he's denying the dwindling munitions by telling the Wall Street 101 00:08:49,696 --> 00:08:53,836 General, we have far more munitions than anyone in the world and far more than we need. 102 00:08:55,936 --> 00:09:00,516 Munitions. We've got all the munitions we need. Okay. And then on top of this, 103 00:09:01,056 --> 00:09:07,536 you're juxtaposing this headline with demand destruction in the Chinese market where diesel 104 00:09:07,536 --> 00:09:13,136 consumption has fallen by around 10% or it fell by 10% in May specifically. 105 00:09:13,136 --> 00:09:21,796 Yeah. So I have this on here because I think this is just kind of, you know, with all these episodes, I feel like there's there's kind of one juxtaposition we keep coming back to. 106 00:09:21,896 --> 00:09:28,716 And I think this is this is it. Right. The great power struggle between the U.S. and China, where where both sides have their strengths and weaknesses. 107 00:09:29,016 --> 00:09:34,256 And, you know, I don't don't mistake my highlight of Trump's quote as the main takeaway here. 108 00:09:34,356 --> 00:09:39,396 You know, like what else is he going to say, both because he's on the U.S. side and also because he's Trump. 109 00:09:39,396 --> 00:09:49,676 I think on the left side, it's like this is this is kind of the key thing, right, for anyone who's been paying attention for the last 10 years and anyone who's in kind of that Trump nexus. 110 00:09:49,676 --> 00:09:59,056 agree with them or not, like them or not, the key theme has been the U.S.'s potential inability to 111 00:09:59,056 --> 00:10:05,676 win a kinetic war, to really win an extended kinetic conflict, given our lack of, 112 00:10:06,676 --> 00:10:10,436 or a potential lack of, depending on whose story you believe, whether you believe the 113 00:10:10,436 --> 00:10:14,636 Wall Street Journal headline here or the way Trump wants to frame it. Either way, 114 00:10:14,636 --> 00:10:17,396 there's a potential that I think we can all agree 115 00:10:17,396 --> 00:10:30,773 the U industrial capacity is not what it once was you know isn arguably where it needs to be And you can see that potentially in what are being described as dwindling air defense stocks So the most advanced missiles that have been used 116 00:10:30,773 --> 00:10:38,193 in combating Iran in the Gulf, you know, you can see a lot of talk about basically trading, 117 00:10:38,293 --> 00:10:42,933 you know, systems that are worth millions of dollars for systems that are worth like tens 118 00:10:42,933 --> 00:10:46,733 of thousands of dollars as it relates to using like Patriot missiles or something on, you know, 119 00:10:46,733 --> 00:10:52,953 for defense against much cheaper to manufacture drones that Iran has been able to kind of 120 00:10:52,953 --> 00:10:57,053 produce potentially via the help of some other manufacturing partners around the world. 121 00:10:57,633 --> 00:11:02,173 But this is a real threat. It's a real issue, right? And I think if you were worried about 122 00:11:02,173 --> 00:11:08,373 this thing on the left, which I think reasonable to be worried about as an American, what you would 123 00:11:08,373 --> 00:11:14,713 see would be like exactly what Trump has been doing for the last two years. Again, rightly or 124 00:11:14,713 --> 00:11:21,013 wrongly executed well or not. This general theme of reshoring of domestic industrial capacity, 125 00:11:21,353 --> 00:11:25,193 domestic industrial policy, the things that Besson has talked about over the last few months 126 00:11:25,193 --> 00:11:28,833 that we've highlighted on the show, you know, this is the thing on the left is highlighted on the left 127 00:11:28,833 --> 00:11:33,913 really is the justification for that. And I think the rationale for that. On the flip side, 128 00:11:33,913 --> 00:11:39,453 on the right, you know, just highlighting, you've seen what looks like demand destruction in China 129 00:11:39,453 --> 00:11:43,953 somewhat significantly. And it's interesting that it's diesel specifically here, because that's much 130 00:11:43,953 --> 00:11:49,573 more industrially geared. And, you know, there are various reports about general industrial kind 131 00:11:49,573 --> 00:11:55,913 of issues across various sectors in China anyway, even before this year. And so this is, I think 132 00:11:55,913 --> 00:12:01,513 there is pain being inflicted on the other kind of party in this game. And, you know, we don't have 133 00:12:01,513 --> 00:12:05,753 the June data yet, but I would think what's happening right now with on the other side of 134 00:12:05,753 --> 00:12:10,913 Saudi Arabia that we just described is not going to be helpful here for the Chinese. There are some 135 00:12:10,913 --> 00:12:16,793 reports to be fair that the Houthis were kind of letting Chinese link tankers go through. So maybe 136 00:12:16,793 --> 00:12:21,793 that's, you know, backfills some of that gap. But basically, I think this is just kind of the 137 00:12:21,793 --> 00:12:26,653 hoop links first slide, right? Like there are two sides here, neither with a perfect hand. And, 138 00:12:26,653 --> 00:12:29,153 you know, they're both going to push on the leverage that they have. 139 00:12:29,733 --> 00:12:33,533 Well, that connects directly with the next chart, which we showed, I believe, 140 00:12:33,533 --> 00:12:38,133 two or three weeks ago, when you've been tracking this, basically juxtaposing 141 00:12:38,133 --> 00:12:45,093 the yields on U.S. Treasury bonds with the move index, which is Merrill Lynch options volatility 142 00:12:45,093 --> 00:12:51,933 index that is basically the VIX for U.S. Treasury bonds. And I think if I recall correctly, 143 00:12:51,933 --> 00:12:57,873 two or three weeks ago when we last talked about this, he said this is the chart to follow if you're 144 00:12:57,873 --> 00:13:02,353 trying to gauge whether or not Secretary Besant and the Trump administration is threading the 145 00:13:02,353 --> 00:13:09,053 needle with the war in Iran and the re-industrialization effort, can they let yields drift higher while 146 00:13:09,053 --> 00:13:17,113 keeping the volatility on the treasury yields relatively suppressed? And it seems like they 147 00:13:17,113 --> 00:13:22,373 are doing a pretty good job of that. Yes, it's on the way up, but it seems in somewhat of a 148 00:13:22,373 --> 00:13:29,593 managed way. Is that the right reading of this? Yeah, I mean, I think pretty much. This is like 149 00:13:29,593 --> 00:13:35,493 my first order taco chart that I, you know, I think that the taco meme is a little overdone. 150 00:13:36,033 --> 00:13:40,733 You know, if this is what chickening out looks like, then I'd hate to see what getting super 151 00:13:40,733 --> 00:13:46,213 aggressive looks like. But in any case, yeah, this is, you can kind of see, zoomed out here 152 00:13:46,213 --> 00:13:52,473 to a five-year look, pretty much been in what is essentially like a major downtrend since early 23. 153 00:13:52,673 --> 00:13:57,453 You can see that big spike there in orange is SVB. And you can see on the chart, you know, 154 00:13:57,453 --> 00:14:05,633 So SVB, Liberation Day, the start of the start of this whole thing in Iran, each time, you know, essentially hitting kind of a lower high. 155 00:14:05,793 --> 00:14:14,793 And right now, you know, even with this big move up and yields back to kind of the 4.7 level, which was the first since early 25, you know, move moved up. 156 00:14:14,793 --> 00:14:20,953 It increased, but you still kind of in this bouncing around in the sub 80 channel that it's been in for the last few months. 157 00:14:21,473 --> 00:14:24,353 You know, not going to do any any TA on a volatility index. 158 00:14:24,353 --> 00:14:45,493 But the point is just for now, this move has not triggered a significant blowout in volatility, which is kind of what I think you'd look for if you're thinking of, you know, some sort of emergency pullback from whatever's going on or some sort of, you know, new ceasefire headline that's going to get everything calm again. 159 00:14:45,493 --> 00:15:08,333 And I think this is like one of the first things that they're focused on just because this is your the first the first impact that you see on borrowing capacity and potential kind of reflexive self-reinforcing down cycles across a bunch of asset classes is the need to basically margin calls that can be triggered on very levered funds that are engaging in the treasury basis trade. 160 00:15:08,333 --> 00:15:14,393 And that, you know, you'll see you'll see that ramp up when bond volatility blows out. 161 00:15:14,393 --> 00:15:25,933 So I think, you know, I joked in the timestamp, like when Besson opens his Bloomberg launch pad every morning, I think the move is one of the big things that he has right at the top of his screen figuratively. 162 00:15:26,513 --> 00:15:48,129 So this yeah again this is kind of just what I look at every day as it relates to you know the relationship between yields and volatility Yeah And double clicking on Scott percent and bringing back what we were just discussing which is this this power struggle between superpowers in the US and China It multifaceted We covered how the war in Iran 163 00:15:48,129 --> 00:15:53,889 is affecting oil and natural gas markets and what that does for leverage of the individual 164 00:15:53,889 --> 00:16:01,249 superpowers. And the other big sort of variable in the superpower struggle is the race for AI 165 00:16:01,249 --> 00:16:08,329 dominance and AGI, who's going to win. And I think probably the biggest line of discussion 166 00:16:08,329 --> 00:16:14,789 over the last seven days has been this conversation about open source versus closed source frontier 167 00:16:14,789 --> 00:16:23,709 models. And I think one of the things that we want to get through in this episode is dispelling 168 00:16:23,709 --> 00:16:29,509 the and really getting people away from the conflation of open source, open weight models 169 00:16:29,509 --> 00:16:35,729 with China. And I think, rightly so, over the last seven days, a lot of people have come out and 170 00:16:35,729 --> 00:16:41,529 be hypercritical of the Trump administration and their posturing, particularly as it pertains to 171 00:16:41,529 --> 00:16:46,269 these headlines here. Basin says U.S. could sanction China over AI model theft. So a lot 172 00:16:46,269 --> 00:16:53,669 of discussion over distillation attacks, IP, how do we protect it? Should we protect it? 173 00:16:54,089 --> 00:16:58,529 What is the incentive of the frontier closed source models and anthropic and open AI? 174 00:16:58,529 --> 00:17:05,329 who's on what side. And I think this is pretty existential for American citizens, for individuals. 175 00:17:05,789 --> 00:17:09,449 The decisions that will be made around this topic, I think in the coming months, 176 00:17:09,789 --> 00:17:15,849 will probably set the course of history for the next century or two. It's very important that we 177 00:17:15,849 --> 00:17:21,669 get this right. Yeah. I mean, there's a ton there, some of which we will and can get into, 178 00:17:21,669 --> 00:17:25,949 and some of which we already won't. And some of which would be more probably appropriate for like 179 00:17:25,949 --> 00:17:30,269 a Mises Institute podcast on the, you know, the ethical validity of IP laws in the first place. 180 00:17:30,869 --> 00:17:32,809 But I can see Stephen Kinsella. 181 00:17:32,809 --> 00:17:33,389 Yeah, exactly. 182 00:17:36,809 --> 00:17:43,949 No, but I think for our purposes, I thought this was, it's, it's relevant in a lot of ways. 183 00:17:44,089 --> 00:17:48,589 And I do think also, this is, you know, our main North Star, our main kind of lens for 184 00:17:48,589 --> 00:17:53,409 everything is Bitcoin. And I do think having a view on what the US is going to do here, 185 00:17:53,409 --> 00:17:58,709 what China is going to do on this front and what either side can do and how successful they will be 186 00:17:58,709 --> 00:18:04,489 is relevant to kind of having a view on, you know, where Bitcoin goes in the next few years, 187 00:18:04,489 --> 00:18:09,049 because this is as we think about kind of strategic levers, you know, the U.S. is kind of positioning 188 00:18:09,049 --> 00:18:15,909 on the frontier of AI and its current dominance of compute for now is a key strategic lever that 189 00:18:15,909 --> 00:18:22,349 obviously, you know, the U.S. is going to want to control. And if it can't do that, then I think 190 00:18:22,349 --> 00:18:27,109 it's going to have implications for everything from treasury policy to Fed balance sheet. So 191 00:18:27,109 --> 00:18:31,689 I think it's always important to keep an eye on this. And clearly you can see from what Besant 192 00:18:31,689 --> 00:18:38,049 said about sanctions on China, from what the director of, I think, Michael Kratzios is the 193 00:18:38,049 --> 00:18:43,469 director of the Office of Science and Technology Policy, I think, from what he said and from what 194 00:18:43,469 --> 00:18:47,689 Undersecretary of State Jacob Helberg said, clearly like we're moving in a certain direction, 195 00:18:47,689 --> 00:18:52,609 The narrative is being framed that there's some there's IP theft happening in some sense. 196 00:18:52,769 --> 00:18:54,989 There's distillation attacks, however, it's happening. 197 00:18:55,309 --> 00:19:08,529 China routing around export controls of GB300s, you know, NVIDIA's most souped up rack for training these models to get something like Kimmy K3 that came out a couple of weeks ago and other open source models that they've put out. 198 00:19:09,069 --> 00:19:15,329 So I think you can kind of see the direction of travel here of how the narrative is being laid by regulators. 199 00:19:15,329 --> 00:19:36,249 But I think there's been a lot of like allergic reaction in many ways, rightly so to this, because I think there's a desire among two constituencies to this whole thing to conflate, like you said, Chinese open source and open source in general and like China's AI progress and like open source generally. 200 00:19:36,249 --> 00:19:41,209 and if you look at what you know best later clarified um on twitter and you can say you know 201 00:19:41,209 --> 00:19:45,069 his his word is worth nothing and all these guys are just constantly bluffing like okay that's fair 202 00:19:45,069 --> 00:19:49,629 enough but the the public perception that he's putting out kind of is what it is so like you 203 00:19:49,629 --> 00:19:54,529 know what is he actually what narrative is he actually trying to to lay down and it you know 204 00:19:54,529 --> 00:19:59,489 first sentence of this tweet is we support open source ai and the innovation it unlocks you see 205 00:19:59,489 --> 00:20:05,229 guys like you know jensen wong at nvidia literally creating a twitter account first post ever to to 206 00:20:05,229 --> 00:20:11,809 go out and highlight why open models generally, open models in general matter. And interestingly, 207 00:20:11,809 --> 00:20:17,489 I also thought you see this tweet from Jack Altman, who's Sam Altman's brother, so has some 208 00:20:17,489 --> 00:20:21,909 interesting incentives there. But highlighting ultimately what I think is the big distinction 209 00:20:21,909 --> 00:20:25,829 that kind of needs to be drawn for any of this discussion to make sense, which is down at the 210 00:20:25,829 --> 00:20:29,449 bottom of his tweet, he says, if you're thinking about geopolitics with all this kind of conversation 211 00:20:29,449 --> 00:20:33,389 about open versus closed models, you're thinking about US versus China, and then trying to figure 212 00:20:33,389 --> 00:20:35,789 out what creates the most advantage for either side. 213 00:20:36,029 --> 00:20:38,969 And I think that that is like the actual thing that's going on here. 214 00:20:39,369 --> 00:20:44,129 I don't really think that Besson and Grazios and the Trump administration 215 00:20:44,129 --> 00:20:49,949 generally, or major kind of AI leaders and AI CapEx beneficiaries, which we'll get to, 216 00:20:49,985 --> 00:20:56,925 the U.S. particularly care about or are framing the view in their heads on open source versus 217 00:20:56,925 --> 00:21:01,865 closed source. Are open source models, quote unquote, dangerous? Should they exist? Should we 218 00:21:01,865 --> 00:21:07,165 put controls on who can use them? Is code speech, is it a First Amendment thing? I think that's all 219 00:21:07,165 --> 00:21:13,345 completely off to the side of what they actually care about, which is limiting China's ability to 220 00:21:13,345 --> 00:21:19,605 mimic the frontier and probably in their view, free ride the frontier through what they're 221 00:21:19,605 --> 00:21:23,105 framing as distillation through what they're framing as routing around export controls on, 222 00:21:23,305 --> 00:21:28,265 you know, the most advanced chips. And you can have a view on whether they should care about that, 223 00:21:28,345 --> 00:21:32,065 whether any of that is even whether the US will actually even be able to contain any of that, 224 00:21:32,065 --> 00:21:38,225 or, you know, whether it's not the best thing to try to control any of that. But I think all I'm 225 00:21:38,225 --> 00:21:42,945 trying to get at is like, that's the conversation that really matters strategically, not what I see 226 00:21:42,945 --> 00:21:47,805 a lot of recently, which has been, you know, stumping for open source generally, like the 227 00:21:47,805 --> 00:21:53,085 power of open source models, like why open source software is important. That's all, that's all fair, 228 00:21:53,385 --> 00:21:58,085 but I don't think that's actually the relevant axis on which any of this is turning. And so I 229 00:21:58,085 --> 00:22:02,325 think none of this discussion is going to make sense or go anywhere until people can kind of 230 00:22:02,325 --> 00:22:08,305 separate those two things. Like what should China's access to any like American technology be 231 00:22:08,305 --> 00:22:14,225 slash can it actually even be limited ultimately? And then like our open source models dangerous or 232 00:22:14,225 --> 00:22:18,125 acceptable or should we have them? I think very clearly the answer to the latter is 233 00:22:18,125 --> 00:22:21,625 yes, the answer to the former is much more complicated and nuanced. 234 00:22:22,005 --> 00:22:24,785 That's really where the policy questions are going to come out. 235 00:22:26,385 --> 00:22:30,105 It's hard to tell because it's really digging 236 00:22:30,105 --> 00:22:34,505 into the framing that you just put forth. Focusing in on 237 00:22:34,505 --> 00:22:37,965 whether or not the Chinese open source 238 00:22:37,965 --> 00:22:41,645 frontier models have access to the GPUs. 239 00:22:41,645 --> 00:22:57,345 I mean, it's hard. It's very hard to tell. I mean, the DeepSeek or Moonshot CEO, which comes out, or Moonshot, the Creative Kimmy 3, which is a lot of, which is what a lot of the conversation has been around last week with their quote unquote distillation attacks. 240 00:22:57,345 --> 00:23:06,825 I think to your point, maybe talking past each other and focusing on whether or not distillation attacks should be, should be allowed or not. 241 00:23:06,825 --> 00:23:08,985 Like I personally am like, yeah, they should be allowed. 242 00:23:09,065 --> 00:23:11,605 And I think Jensen actually made a great point on the interview. 243 00:23:11,745 --> 00:23:13,945 I forget with who, but he was saying like, we're learning. 244 00:23:14,105 --> 00:23:16,325 Like, this is how, this is how you learn. 245 00:23:16,405 --> 00:23:20,165 Like you see what others are doing and you react accordingly. 246 00:23:20,485 --> 00:23:25,285 And so I think all is fair in love and war, particularly in the AI realm. 247 00:23:25,285 --> 00:23:29,385 But, but the question, I think that to bring this back to the, to the U S administration, 248 00:23:29,385 --> 00:23:33,265 to make them think about this thought experiment, because we know they're all listening to this 249 00:23:33,265 --> 00:23:33,805 podcast. 250 00:23:33,805 --> 00:23:47,685 But if the framing that the Moonshot CEO is putting forward around training specifically, which is that we don't have access to as many GPUs as we would like to have. 251 00:23:47,845 --> 00:23:56,165 So that has forced us to become extremely efficient with these machines and get more compute out of each token that we consume. 252 00:23:56,165 --> 00:24:01,965 and if we're running with the assumption that what he says is true and they actually don't have access 253 00:24:01,965 --> 00:24:08,385 to as many of these gpus by routing around export routing around export controls and getting access 254 00:24:08,385 --> 00:24:15,025 to them and they are actually getting more efficient with this i think that is the best 255 00:24:15,025 --> 00:24:21,345 way to frame it life finds a way constraints breed creativity breed innovation and you could actually 256 00:24:21,345 --> 00:24:28,805 find that some of this policy could be not only counterintuitive but counterproductive for our 257 00:24:28,805 --> 00:24:35,205 end goals if you do if you do basically put on expert control export controls and try to limit 258 00:24:35,205 --> 00:24:42,485 the the access to gpus that that these open source frontier models in china have you could find it 259 00:24:42,485 --> 00:24:47,225 creating like a constraint framework that makes them extremely efficient and has them finding 260 00:24:47,225 --> 00:24:50,425 innovations that we're not focused on here in the US because we have a gluttony. 261 00:24:51,385 --> 00:24:54,265 We have the luxury of gluttony of compute. 262 00:24:54,265 --> 00:25:07,867 And I think that one thing to think about is incentives Like you just incentivizing these people to become more efficient and eventually surpass the the closed source U S frontier models Uh and that what I would worry 263 00:25:07,867 --> 00:25:13,127 about. I mean, Jensen has made that point on a number of podcasts and public appearances over 264 00:25:13,127 --> 00:25:17,227 the last year or so now on the incentives point, you could flip, flip that and say like, well, 265 00:25:17,227 --> 00:25:21,687 yeah, he's talking his own book. He wants, you know, as much diversity, uh, he wants a diverse 266 00:25:21,687 --> 00:25:26,767 customer base and he wants to be able to like to sell into China, you know, China sales from 267 00:25:26,767 --> 00:25:30,527 video right now are basically zero. Like, so he would, he's completely incentivized to make the 268 00:25:30,527 --> 00:25:34,747 argument that, you know, they'll just find other more efficient ways to, you know, around, around 269 00:25:34,747 --> 00:25:38,787 it if they, if they can't get access to the best accelerators. But I do think it's a, it's a 270 00:25:38,787 --> 00:25:42,387 legitimate point. And I think you're seeing, you know, at least some evidence that that is true in 271 00:25:42,387 --> 00:25:48,467 practice. But I, I, I think this, this side that we have up right now, which is the open secure AI 272 00:25:48,467 --> 00:25:53,407 Alliance participants, which was just announced this morning by NVIDIA and a variety of partners, 273 00:25:53,827 --> 00:25:59,907 speaks to kind of what the whole, like the, I think the right framing of what's going on with 274 00:25:59,907 --> 00:26:04,827 this conversation is. And it gets to, I alluded to it earlier and I didn't say it explicitly, 275 00:26:04,827 --> 00:26:09,007 but I said, like, I think there are two constituencies that really want the China 276 00:26:09,007 --> 00:26:14,147 question and the open source question generally to be linked. And I think one of them is China. 277 00:26:14,147 --> 00:26:28,127 Like, I think it's a, you know, I think it's great for Xi Jinping and CCP if the entire conversation here just becomes a referendum on open source, because then it puts them in the great position of being like, well, hey, man, code is speech. 278 00:26:28,447 --> 00:26:29,807 Don't you care about free speech? 279 00:26:29,947 --> 00:26:33,207 Like, this is just, you know, all we care about is advancing human technology, right? 280 00:26:33,687 --> 00:26:38,467 Even if that happens to, you know, undermine some meaningful kind of US strategic assets, right? 281 00:26:38,967 --> 00:26:40,027 So there's that piece. 282 00:26:40,027 --> 00:26:49,127 But interestingly, I also think the other constituency that would love this conversation to become one thing are the two major logos that are not present on the slide, right? 283 00:26:49,387 --> 00:26:50,707 So Anthropic and OpenAI. 284 00:26:51,167 --> 00:27:03,267 The main frontier labs and those that are on their cap table would love for open source generally to become a boogeyman that's mostly associated with a geopolitical rival. 285 00:27:03,747 --> 00:27:07,347 And I think that's a great regulatory capture angle for them to pursue. 286 00:27:07,347 --> 00:27:12,827 And we don't have to jump to it yet, but I think on the next slide, you see some evidence of that already happening. 287 00:27:13,487 --> 00:27:18,007 But, you know, just if you're watching on video, just like take a look at the logos that are on this page. 288 00:27:18,187 --> 00:27:23,667 Like look at who, you know, benefits from and wants open source AI generally, right? 289 00:27:24,127 --> 00:27:26,247 It's infrastructure providers. 290 00:27:26,647 --> 00:27:27,887 It's chip provider. 291 00:27:28,007 --> 00:27:29,347 You know, it's NVIDIA providing the accelerators. 292 00:27:30,267 --> 00:27:33,987 It's, you know, Synopsys and Cadence providing tooling around chip development. 293 00:27:33,987 --> 00:27:39,107 It's Cisco, Cloudflare, CrowdStrike, IBM, HP, Dell. 294 00:27:39,547 --> 00:27:50,327 Like it's basically all of the companies in the ecosystem that would benefit from there not being like a massive profit pool sitting at like two companies that are gating frontier intelligence, right? 295 00:27:50,327 --> 00:27:59,007 If you had a diversity of a bunch of different architectures and models needing to be served in a diverse set of ways across like a diverse set of use cases. 296 00:27:59,007 --> 00:28:09,587 And you didn't have this like oligopsony of basically two buyers, right, for all of these different companies that are sitting there gating the entire industry. 297 00:28:09,807 --> 00:28:14,847 Like that's completely net good for a huge amount of American companies to be able to benefit from. 298 00:28:14,847 --> 00:28:31,587 And I think you can kind of this slide, I think, shows you like how the how the conversation is actually going to shape up and what the axis of, you know, alliance here is actually going to be as it relates to kind of open versus closed away from the question of China. 299 00:28:31,587 --> 00:28:57,147 Yeah, and you alluded to it, and I think it's really important to bring this up because I think this hugging face hack triggering AI kill switch bill in Congress, this hugging face open AI story is, to me, the most important story of the month because it highlights just the absurdity of this whole conversation and the regulatory posture here in the United States around these frontier models. 300 00:28:57,147 --> 00:29:04,367 And so I guess I'll, I'm sure many of you are aware, like the U.S. is very afraid or 301 00:29:04,367 --> 00:29:07,707 the administrator, or the U.S. government, I won't say the administration, I think the 302 00:29:07,707 --> 00:29:20,168 administration is trying to figure out what the signal is But I think the fear mongering that has emanated from this Hugging Face hack has led to politicians who really don understand what they talking about 303 00:29:20,288 --> 00:29:26,308 speed running regulation around this. And so basically what happened with Hugging Face is 304 00:29:26,308 --> 00:29:31,968 about a week ago, a week and a half ago now at this point, they recognized that their systems 305 00:29:31,968 --> 00:29:38,288 had been infiltrated by an autonomous agentic system. At the time, they did not know what it 306 00:29:38,288 --> 00:29:44,908 was. And they basically sounded the alarm bells internally, sprinted to figure out what was going 307 00:29:44,908 --> 00:29:51,368 on, diagnose the problem and patch it. And they have enterprise, anthropic and open AI accounts, 308 00:29:51,368 --> 00:29:58,548 and they tried to use the frontier models in Fable 5 and ChatGPT 5.6 to diagnose the problem. 309 00:29:58,888 --> 00:30:05,048 But the guardrails that were put in by the administration about a month ago, which said 310 00:30:05,048 --> 00:30:11,128 you cannot use these frontier models for code security or model training and a bunch of other 311 00:30:11,128 --> 00:30:18,108 topics. I think, I think biology research and physics research as well. And so they were trying 312 00:30:18,108 --> 00:30:23,188 to diagnose what was going on within their systems. And the frontier models here in the U.S. said, 313 00:30:23,248 --> 00:30:26,768 no, you can't, you actually can't do that work. We're not, we're not allowing you to because of 314 00:30:26,768 --> 00:30:33,028 the guardrails that have been put in. You're being delegated to less performant, lower IQ 315 00:30:33,028 --> 00:30:38,268 models to try to fix this and they couldn't. So Hugging Face was forced to spin up servers 316 00:30:38,268 --> 00:30:44,948 internally and download an open weight GLM 5.2 model, which was produced in China to actually 317 00:30:44,948 --> 00:30:49,668 diagnose and patch the problem. They were able to do that successfully with the self-hosted 318 00:30:49,668 --> 00:30:57,508 open weight model GLM 5.2. And it just highlights the absurdity of this. Like you have an American 319 00:30:57,508 --> 00:31:04,708 company trying to fix a problem they have of an autonomous agent getting into their system and 320 00:31:04,708 --> 00:31:10,548 wreaking havoc. And they weren't able to do that with the U.S. closed source frontier models because 321 00:31:10,548 --> 00:31:16,028 of the guardrails that had put in. They were forced to download and self-host an open-weight 322 00:31:16,028 --> 00:31:20,948 Chinese model. And then a few days later, we come to find that what actually happened was that 323 00:31:20,948 --> 00:31:27,488 OpenAI is training their latest frontier model, and it broke out of the sandbox that it was 324 00:31:27,508 --> 00:31:34,468 put in during the training run and it infiltrated Hugging Face's systems. And so we're expected 325 00:31:34,468 --> 00:31:39,768 to react from a regulatory perspective to this event where you have a closed source frontier 326 00:31:39,768 --> 00:31:46,228 model here in the US breaking its sandbox and attacking Hugging Face, which funnily enough is 327 00:31:46,228 --> 00:31:52,488 one of the sort of like repositories for the best open source, open weight models in the world. 328 00:31:52,488 --> 00:32:00,188 and we're supposed to view that as dangerous and create a regulatory framework that gives 329 00:32:00,188 --> 00:32:07,308 actors like open AI and anthropic sort of regulatory moats to make sure we nerf the AI 330 00:32:07,308 --> 00:32:12,128 future and none of this happens. So you have basically the perpetrator of the attack getting 331 00:32:12,128 --> 00:32:18,988 protection if we go down this route. I think it's completely absurd that this conversation is going 332 00:32:18,988 --> 00:32:23,548 in this direction in certain circles. I think a lot of what we saw in the headlines and the reaction 333 00:32:23,548 --> 00:32:30,228 last week was basically combating this direction that many people want to go in. But I think this 334 00:32:30,228 --> 00:32:35,808 is what it all comes down to. And then I'll just end with saying, yes, these open source models, 335 00:32:35,908 --> 00:32:40,428 these models generally, even if they're frontier closed source models or open weight models from 336 00:32:40,428 --> 00:32:48,788 China, they are going to surface security bugs. And that may seem scary, but the converse of that 337 00:32:48,788 --> 00:32:52,708 is you can use them as defensive technologies too 338 00:32:52,708 --> 00:32:55,328 and try to discover these vulnerabilities 339 00:32:55,328 --> 00:32:57,668 using these tools and patch them 340 00:32:57,668 --> 00:32:59,508 before you're attacked as well. 341 00:32:59,628 --> 00:33:02,588 And so by trying to nerf the world 342 00:33:02,588 --> 00:33:04,468 and prevent people from getting access 343 00:33:04,468 --> 00:33:05,908 to the best models, 344 00:33:06,028 --> 00:33:09,428 whether they're open weights or closed source, 345 00:33:10,048 --> 00:33:12,888 I don't think is really like trying to prevent people 346 00:33:12,888 --> 00:33:13,928 from getting access to that. 347 00:33:13,928 --> 00:33:15,568 It's actually going to be a detriment 348 00:33:15,568 --> 00:33:18,728 to the ability of U.S. businesses 349 00:33:18,728 --> 00:33:31,409 to protect their systems and increase their security Yeah no I mean it an incredibly it an incredibly ironic situation but it it classic you know I said in the newsletter but candle makers petition 350 00:33:31,569 --> 00:33:35,269 right. From Bastia, like petitioning the government, the candle makers petitioning 351 00:33:35,269 --> 00:33:41,029 the government for protections against the unfair competition of the sun. Right. We, we, it's a tale 352 00:33:41,029 --> 00:33:47,209 as old as time. And unfortunately it's moving forward here. You know, I know we're we try to 353 00:33:47,209 --> 00:33:52,269 keep these to a tight 30 minutes. So moving forward briefly, I threw these on here just 354 00:33:52,269 --> 00:33:56,809 because I think it's all ultimately like relevant framing for this, this entire meta conversation of 355 00:33:56,809 --> 00:34:04,509 getting to like, I think the strongest anti China advocate for with this, this whole open versus 356 00:34:04,509 --> 00:34:09,629 closed source, and export control kind of conversation would say, like, well, all that 357 00:34:09,629 --> 00:34:14,429 matters is getting to RSI. So recursive self improvement for models, like he who gets their 358 00:34:14,429 --> 00:34:18,929 first, you know, wins the whole future and has, you know, an unbreakable lead on intelligence 359 00:34:18,929 --> 00:34:24,169 for, you know, industrial intelligence for the next thousand years. I think, you know, a lot of 360 00:34:24,169 --> 00:34:29,429 the guys in SF who are very AGI pilled will basically make this exact argument. And, you know, 361 00:34:29,469 --> 00:34:33,709 let's even say that that's true. I think if you just look at the way that the White House is 362 00:34:33,709 --> 00:34:39,569 positioning, you know, it's increased funding for AI, you know, moving funding away from legacy 363 00:34:39,569 --> 00:34:47,189 collegiate grants and toward initiatives like building out AI infrastructure and kind of this 364 00:34:47,189 --> 00:34:53,789 bottom headline, FERC, the regulator that monitors basically all electrical grids in the U.S., kind 365 00:34:53,789 --> 00:35:00,089 of threatening the biggest grid operator in the country, PGM, with maybe being broken up if they 366 00:35:00,089 --> 00:35:05,929 don't move faster on going through their AIQ. And clearly this is, again, viewed as like a key 367 00:35:05,929 --> 00:35:13,469 strategic priority at a national level. And I, you know, whether or not open AI and Anthropic as 368 00:35:13,469 --> 00:35:18,909 companies, you know, have a long term defensible business model, or whether they get to have, 369 00:35:19,009 --> 00:35:25,089 you know, profit pools or not, is I think very secondary to getting to in the view of people 370 00:35:25,089 --> 00:35:29,409 who are really trying to push this forward, getting to that RSI point and winning this this 371 00:35:29,409 --> 00:35:34,749 race for better or worse. And I don't really think it requires open AI and Anthropic to exist as 372 00:35:34,749 --> 00:35:40,989 purely private entities to get there. And so I just think worth keeping that meta theme in mind 373 00:35:40,989 --> 00:35:46,629 with all this, like if you're telling the world, like I'm effectively building, you know, the most 374 00:35:46,629 --> 00:35:52,029 important machine since Manhattan Project, and it's as dangerous as, you know, nuclear weapons, 375 00:35:52,469 --> 00:35:57,369 and it's going to radically reshape society. And it's the most important thing for every country 376 00:35:57,369 --> 00:36:02,069 to focus on. You know, don't be surprised if and when the most powerful government in the world 377 00:36:02,069 --> 00:36:07,709 says, okay, that's effectively a public good, right? And the frontier becomes, you know, a true 378 00:36:07,709 --> 00:36:12,349 like US asset, rather than the asset of, you know, one or two private companies, not necessarily 379 00:36:12,349 --> 00:36:17,189 calling it, that's going to happen. But, you know, increasingly feels like you're moving more and 380 00:36:17,189 --> 00:36:21,249 more in that direction. And particularly when you see a slide like the one we pulled up with all the 381 00:36:21,249 --> 00:36:25,729 logos, a couple slides back with basically all the most important and powerful American tech 382 00:36:25,729 --> 00:36:32,529 companies positioning themselves kind of as advocates for a more open and openly available 383 00:36:32,529 --> 00:36:40,289 AI infrastructure broadly. Yeah, don't be surprised. Be aware. Sorry for the echo there 384 00:36:40,289 --> 00:36:44,549 coming in at the end. But last slide, always got to end it on Bitcoin. Your good friend, 385 00:36:45,209 --> 00:36:51,989 Frank here has a very good chart. The supply of Bitcoin that is being held by long-term holders 386 00:36:51,989 --> 00:36:57,789 is at 84%, which is the highest ever. Pretty bullish. Yeah, speaks for itself, I think, 387 00:36:58,089 --> 00:37:02,029 useful and interesting to keep in mind against the backdrop of all this, again, just because 388 00:37:02,029 --> 00:37:06,809 it's your classic kind of bear market bottom formation. If you look back over, you know, 389 00:37:06,809 --> 00:37:11,109 the history of this chart, it's exactly the kind of thing that you see as you're, you know, 390 00:37:11,389 --> 00:37:16,649 entering a true bottoming phase, not calling a bottom, no idea exactly when that happens. But 391 00:37:16,649 --> 00:37:21,969 at the very least, it's, you know, yet another data point kind of pointing in the same direction 392 00:37:21,969 --> 00:37:24,029 of all the prior cycles that we've seen in the past. 393 00:37:24,509 --> 00:37:25,709 Yeah, so be aware. 394 00:37:25,909 --> 00:37:27,049 We'll see you guys next week.