Ferg's Finds

This is a short weekly email that covers a few things I’ve found interesting during the week.

Article(s)

This is an excellent piece by Marc Andreessen: Why AI Won't Cause Unemployment.

AI is already illegal for most of the economy, and will be for virtually all of the economy.

How do I know that? Because technology is already illegal in most of the economy, and that is becoming steadily more true over time.

How do I know that? Because:

The sectors in red are heavily regulated and controlled and bottlenecked by the government and by those industries themselves. Those industries are monopolies, oligopolies, and cartels, with extensive formal government regulation as well as regulatory capture, price fixing, Soviet style price setting, occupational licensing, and every other barrier to improvement and change you can possibly imagine. Technological innovation in those sectors is virtually forbidden now.

It reminds me of some of the arguments made in The Myth of Capitalism by Jonathan Tepper. Where the central point was that capitalism without competition is not capitalism.

Podcast/Video

The End Game Ep 53 - Mike Green

Hearing Mike run through the passive machine always makes me rethink just how crazy things could get before cyclicality takes hold.

Talking about how crazy a valuation is makes little difference when the main funds flowing into a company with the crazy valuation are systematic active investors at any price.

Passive being ‘buy and hold’ is misleading as they are actually systematic active investors at any price.

Positive flows = buy at any price

Negative flows = sell at any price

-Mike Green

Quote

The correct reading of DeepSeek’s performance is…open source models are surpassing proprietary ones.”

-Yann LeCun (Meta’s Chief AI Scientist)

It’s wild that as US tech pours billions into AI CAPEX, Chinese tech is integrating Deepseek.

Tencent's Weixin app, Baidu launch DeepSeek search testing

Tencent is exploring the integration of multiple products with DeepSeek, including Tencent Cloud AI Code Assistant and Tencent Yuanbao, another AI assistant app, said a person with knowledge of the matter.

DeepSeek is being tested by Weixin, which serves domestic users, not its sister app WeChat, which targets overseas users. The two had a combined 1.38 billion users at the end of September.

In a separate announcement, Baidu said it would fully connect its search engine to DeepSeek as well as its proprietary Ernie large language model.

DeepSeek last month upended the AI world, launching a free AI assistant that it says uses less data at a fraction of the cost of incumbent services. It quickly overtook U.S. rival ChatGPT in downloads from Apple's App Store.

Tweet

HFI Research doesn’t get enough love for the quality of their work!.

Charts

Continuing with the piece I started with: Could AI reduce defense spending?

For example, could drones provide substantial cost savings over the F22 programme for $67B ($350m per plane).

The answer is probably not, because;

The sectors in red are heavily regulated and controlled and bottlenecked by the government and by those industries themselves.

I mean, the chart below is ridiculous enough before you consider they outsourced all the manufacturing to China.

The fact the US outsourced their military industrial base to China, their main adversary, belongs in a Balyloon Bee article.

‘We can de-risk but not decouple’ from China, says Raytheon chief

Something I'm Pondering

I’m pondering if I’m too bearish on Germany/Europe.

Take the ZEW Current Conditions Index, which has broken down to lows, which historically set the stage for mean reversion.

For me to change my tune, it would have to be on the likelihood of a pivot in energy policies.

A pivot back to Russian gas would certainly do it!

A nuclear comeback?

Can kicking to combat the industrial decline isn’t going to do it.

If I had to pick a headline to illustrate Germany's current trajectory, it would have to be this one!

For now, I can’t see a tradeable turnaround.

I’m far more comfortable doubling down on my Chinese tech investments.

I hope you’re all having a great week.

Cheers,

Ferg

P.S. If you’re wondering what it would take to fix the current “monopolies, oligopolies, and cartels, with extensive formal government regulation as well as regulatory capture and price fixing.”

It would have to be a resurgence of antitrust enforcement, which is at century lows.