| SUBSCRIBER UPDATE |
Good morning subscribers!
We had a few technical issues with the send-out of our newsletter again this week. If you were expecting it and it didn’t land in your inbox, it was published on Sunday and is available here.
To avoid these issues, we will shortly be moving to a new content management system. In the meantime, we’re experimenting with some alternative content formats that we hope will make our service more digestible and selective.
From this week onwards, the weekly premium newsletter will focus on spotlighting no more than three to four blind spots (the content of which will be made up of a mix of reporting and commentary). We will aim for this newsletter to land every Saturday morning. A secondary newsletter, meanwhile, will dispatch more regularly and focus on aggregating “blind spots” and combining them with explainer “hot takes”. Our longer analyses or unique reports will continue to dispatch as “spotlights” as and when they’re ready.
Think there’s something we’re missing? Please do send tips to [email protected] and [email protected].
| QUICK-FIRE BLIND SPOTS |
ADAM TOOZE ON CHINA. Historian Adam Tooze told Odd Lots’ Tracy Alloway and Joe Weisenthal that everyone’s wrong about Chinese product dumping because actually it’s a consumer gift, and there’s no point in protecting manufacturing anymore. It’s services that matter.
What’s the blind spot? Tooze has become a central figure bigging up the new economic fetish of central planning, a movement that is increasingly becoming known as ‘Modern Supply Side’ economics. But that doesn’t mean he’s right. Especially when it comes to servicing, which is largely impossible to scale outside of the virtual domain. One former Goldmanite Gregory Barry, had thoughts: “Adam Tooze is heavy on leftist ideology, light on actual economic understanding and insights. Not long ago he advocated for German politicians to simply ignore the constitutional cap on spending. He’s not a friend of Western liberals.” CFR’s Brad Setser wasn’t a fan either.
SAUDI GETS IN ON THE SUPERCOMPUTER GAME: Aramco and Cerebras Systems struck a deal to bring high-performance AI inference to industries, universities, and enterprises in Saudi Arabia. Aramco plans to build, train, and deploy world-class large language models (LLMs) using Cerebras’ industry-leading CS-3 systems. Aramco also announced the deployment of an AI supercomputer, one of the first systems of its kind in the region, which will be powered by some of the most powerful NVIDIA Graphical Processing Units (GPUs).
What’s the blind spot? There’s a chip war going on between frenemies UAE and Saudi Arabia, and it’s centered on who can get their hands on the world’s spare chip capacity at the cheapest price. They’re also fighting over who can curry the most favor with the U.S. without necessarily closing a door to China. Something that has thus far been hard to do. Saudi is still technically subject to export controls from the U.S. (which is worried about the chips being onward sold to China), but this week’s Nvidia deal suggests Washington may be softening its stance. And one thing Saudi has going for it as a future global processing hub (or even a potential chip manufacturer) is its far more abundant oil supply, which makes it the perfect state to manage “swing processing power” demand.
Not everyone is convinced that Cerebras chips (which represent a breakaway from conventional chip design) are long-term competitive due to their expense, weirdly large size and scaling issues. But that’s probably why KSA is hedging its bets by also buying Nvidia chips, while also seeking new technologies like those provided by Etched (a so-called ASIC chip that burns the transformer architecture directly into its chips). The latter, we understand, may soon be trialed for optimizing crowd control at Mecca.
Meanwhile, the U.S. has given the okay for Nvidia chips to be sold to UAE’s G42 (of Pegasus-linked fame).
THE MISALLOCATION AT THE HEART OF THE AI HUSTLE: Australian academic, Evan Shellshear’s new book, “Why Data Science Projects Fail” argues that if corporate history is any guide we can expect some $1.6 trillion of the $2 trillion that is to be spent in the next two years on AI to be utterly wasted.
What’s the blind spot? Evan says it’s not the tech that’s the problem, but general mismanagement and manic thinking. With Europe, America and a Crown Prince very visibly throwing buckets of money at the sector, investors would be idiots not to worry about capital misallocation. Somebody should of course point this out to Mario Draghi.
A TALE OF TWO CHINAS: A growing number of people are realizing the two mainstream China views cannot both be right. In the bear corner, the FT went big this week on how China was throttling its private sector, while China itself approved a plan to raise its retirement age. China’s ultra long-end bond yields, meanwhile, fell below Japan’s, as its 10-year yield fell to a record low of 2.0775 percent. But China bulls insist this is just the West being biased and getting it all wrong. Take the view of highly followed (albeit often inaccurate) Arnaud Bertrand who argued the bears’ eyes were deceiving them and that it’s Western data that is dubious.
What’s the blind spot? Clearly, one of these stories has to be wrong. If it’s the current upside copium, when the reality levee eventually breaks the consequences for the entire global economy could be dire and move extremely quickly. Much like when everyone finally acknowledged Biden’s dementia was a problem after all.
BILLIONAIRE DEATHS: Divers recovered the body of wealthy investor and businessman Daniel Reiner in Trout Lake, Idaho, this week, after his family reported him missing the day before. Reiner started Stemcentrx, a bio firm he sold in 2016 to AbbVie for $5.8 billion, that created experimental drugs that targeted cancer stem cells. “(Reiner) went swimming and just didn’t come back,” acquaintances said.
What’s the blind spot? The spell of untimely watery deaths hitting billionaires whose fortunes were often closely linked to soured M&A deals. Abbvie, for example, announced in 2019 that it would be taking a $4 billion impairment charge related to its Stemcentrx acquisition. A casual reminder too that shipping tycoon Angela Chao drowned in March this year after inadvertently reversing her Tesla into a pond at a Texas ranch. Angela, as it happens, was the sister of former transportation secretary Elaine Chao, who was also the wife of Senate majority leader Mitch McConnell. Foremost Group, the shipping company Angela was CEO of, was closely involved in Chinese operations and benefited from a number of state Chinese loans. It’s possibly a bad time to own yachts.
NEXT GENERATION STEEL: Mario Draghi let slip that Germany’s ability to source vital transformers for its electricity grid was seriously compromised when the Houthis attacked and blocked off the Red Sea. This cut Germany off from its main steel plant supplier and made it extremely vulnerable. That sort of security factor, says Draghi, makes it arguably economically logical for Germany to invest in next-generation steel manufacturing.
What’s the blind spot? A hydrogen next-generation steel plant is a type of steel manufacturing facility that uses hydrogen as a key component in the production process, rather than relying on traditional carbon-intensive methods such as using coking coal in blast furnaces. This approach is aimed at drastically reducing or eliminating carbon emissions, addressing the significant environmental impact of the steel industry. The problem is, such plants still need access to plentiful hydrogen and thus energy. And the likes of Saudi Arabia are already well ahead of the game.
LARRY ELLISON ON LLM COSTS: Oracle’s Larry Ellison told a conference that the latest frontier AI models will require nuclear reactors that power “acres” of GPU clusters and that it will cost companies $100 billion to stay in the AI race.
What’s the blind spot? It’s not just energy that’s going to be costly. We heard this week that creators are getting wise to their content being harvested by AI training models, and are demanding copyright protection and compensation. And that’s not just regular text-based creators. YouTube content is currently the least copyright protected but, say AI experts, that could be about to change in a big way. As a reminder, the New York Times and Getty Images already have copyright lawsuits active against OpenAI.
WHAT WE’RE READING AND WATCHING:
— Intel reaches deal to make chips for US military (Fortune).
— Peter Thiel in conversation with the All-in podcast about AI (Youtube).
— Datacenters to emit 3x more carbon dioxide because of generative AI (The Register).
— Gunbattles erupt for control of Mexico’s Sinaloa Cartel (WSJ).
— How oligrachs took on the U.K. fraud squad — and won (Guardian).
– The Kingdom: The world’s most powerful prince (iPlayer).
