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Where to turn?

On Friday last week, news began to filter through of a weakness in a bitcoin wallet known as ColdCard. It’s a rather niche product from a small company but nonetheless well known amongst bitcoiners, predominantly because of their highly vocal CEO who goes by the moniker @nvk. Naturally, the website explaining the whole debacle is called nvk.wtf. I present only the first and last slide here. 

In essence, the firmware on affected ColdCard devices was not properly using randomness to generate seed words, for no other reason than the code did not ask it to (although they believed it had). As a result, a hacker is now quietly making their way through various possibilities for seed words on ColdCard devices, essentially because those seed words are now deterministic, not random. With enough guesses a computer can get to the seed word and recreate the wallet.

Emerging with tremendous credit from all of this was Jack Dorsey’s Block. Their post on the specifics of the issue was excellent. It pretty much lays bare that this is a straight up coding error that exposed ColdCard users to a vulnerability. It also revealed that some American companies have access to AI tools that others do not. 

There is a more interesting point here though. The vulnerability was allegedly found by LLM Kimi K3. It has existed for over five years so its discovery correlates closely with the new abilities of the open-source models. To test the hypothesis (feel free to do the same), I gave the details of the Block post, which specifically highlights the weakness, to ChatGPT 5.6 and Claude Fable. Instantly, both refused to participate in any sort of analysis because the findings ‘could be used to exploit the weakness’. True. I then used a combination of Chinese models GLM and then Kimi itself (which gave one refusal before helping). They not only diagnosed the specifics of the vulnerability but described how one could look for it elsewhere, with a view to preventing it, and let’s be honest you could entirely use that to exploit it as well. Precisely why the American models refused.  

So in the case of a major coding/hack related nightmare, you have no choice but to use Chinese models to investigate the issue because they are less nerfed than the American versions. Claude and OAI both knew the answer to this weakness and refused to help. If you are a developer running code, under pressure because something has gone wrong or you have identified a weakness, you are stuck. Only the open-source Chinese models can help you unless you are some sort of specifically approved American company. 

What good will come from this? Well, hardware wallet security is going to get a lot better and it will have to. Everyone is throwing unlimited tokens at their security code, and doing so almost exclusively with the Chinese models. I suspect a lot of things have quietly been hacked over the last few months and we will read about them only over the next few years. 

Some people have questioned ColdCard for years. Mostly because if you challenged them on their software you would be instantly attacked on social media. 

He is clearly now having his moment of smug satisfaction. No comfort there for those affected by the issue, which it must be said was a 101 error. Insufficient entropy from a hardware wallet. 

Red Team

The whole event has produced a red team effort across the ecosystem. In hacking terms ‘red team’ means the good guys simulating attacks on systems to test them. As you can see, it is almost entirely a Chinese model effort. 

Note the suggestion that most people “truly have no idea what is about to happen”. I do believe a lot of things have been hacked in the last few months, probably a lot of major corporations, websites, banks, you name it. Defences have been breached and all is calm (except at ColdCard) but the next six months will tell us. Worth noting too that the very best hacks just stay unknown. When Google got hacked years ago, the hackers sat in the system for years without anyone knowing. 

Is it scary? Yes it is because only the most battle hardened systems are going to survive this.  

They’ve been good to us

On why America is intervening in the Japanese foreign exchange market:

“...they’ve been good to us, apart from Pearl Harbor”

Trumpian diplomacy at its finest this week. The real reason of course is that if America doesn’t help, then Japan will dump its US bond holdings and use the money to prop up the yen. Otherwise currency collapse would precipitate inflation, interest rates would go up sharply….the end. It’s a nightmare scenario. 

For the US, the bond dumping would be extremely unhelpful since they have rather a lot of bonds to unload themselves. Mutually helpful then if the US just buys bucket loads of yen. 

I find this chart instructive on the matter, mapping the scale of debt to the interest rate. Fairly clear line and some unpopular outliers, GB and AU in particular. That’s because the market believes they will move along the x axis of gross government debt relatively more quickly than other countries. It’s a political judgement on the British and Australian governments and the bond market takes no prisoners. 

On the other side of the coin is Japan. At its debt level of 220% of GDP, the interest rate ‘ought to be’ 7% and it's nowhere near. 7% would be the end, within 20 years the entire government budget would be consumed by interest payments. Obviously the bond market would sniff that collapse a long way out, so it wouldn’t take anywhere near that long. 

Difficult problem. Japan, joining Australia as the 51st and 52nd US states in all but name. Whisper it though, people get very upset. 

UBI

Back in 2021 we covered a Universal Basic Income experiment run by the Welsh government. It was the stupidest of stupidities and promptly failed because it just gave people money and required nothing in return. You might call it pure UBI. That strategy fails because it antagonises people that are not getting the free money, generally they are in the majority. 

Still, I remain a believer that not only is UBI coming, it is here. It also explains the near total collapse in productivity growth in some countries, including Australia. 

In the UK, the most recent iteration of UBI came from the new First Secretary of State, Louise Haigh. It requires that to secure government contracts you need to demonstrate that you are going to create jobs. It replaces the previous requirement that you build a windmill nobody asked for. 

Central government departments are required to weigh up the social value of government contracts, which counts for 10% of the decision. Under new measures this will be increased to 20%, but instead of considering social good, government buyers will be pushed to secure contracts with companies creating local jobs that pay above the minimum wage, offer training, work experience or plug local skills gaps.

It’s fairly simple then. Assume I tender for a government contract for £5m and include that I will employ two people and complete the task in ten days. I compete against someone who tenders and says I will use only machines and robots and no humans. It will be complete in seven days. Who wins this contract? If you are a bureaucrat working for a politician that wants more jobs, what choice do you have? “Hi Minister, we saved three days”. I think not. 

A false example of course but the policy runs entirely against the grain of productivity. In the private sector, when you have to use your own money the question is almost entirely “how can I do this at the lowest possible cost with the fewest possible people? Can we buy a machine that can do it? Can we program it?”

This is still universal basic income though. People are getting slightly overpaid to work slightly more slowly and yes it might be good for them, but bad for everyone else. Just like in Wales. 

Back then to the architect of the scheme. The new First Secretary is interesting because she is one of the few government ministers to have had a job in the private sector. She worked for Aviva, a large insurance company. She left that job after she was convicted of fraud for falsely claiming her mobile phone had been stolen so she could upgrade to an iPhone 5. She was given the lowest possible sentence, a conditional discharge.  

She is now the second highest ranking government minister. First Secretary of State, Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office. It’s not really the fraud conviction itself, there are Members of Parliament who have done far, far worse, some in very recent memory. A nothingburger really, it was just a terrible decision and a terrible judgement. 

That’s the issue though, the person running the joint just has terrible judgement. The new policy is a bit like the phone decision. Sounds like a good idea, ‘doesn’t hurt anyone’ but is just monumentally stupid. 

Euro-Trash

Time flies. It seems like only last year we were on the last round of European banknotes. Once again the ECB is running a competition for designs and the finalists are here. It would appear you do not need to be European to vote either, naturally I have participated. Some of them are frankly weird too.  

The general public, as usual, did a far better job. My personal favourite is the memorial to the Nord Stream pipeline which you will all remember the “Russians” blew up. Immediately after which we never heard about it again. 

Further information

Our July 2026 report to investors can be found here.

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Silent payments

One of the main criticisms of bitcoin is, surprisingly, its lack of privacy. Assume I buy some bitcoin on an exchange, I provide my KYC documents and I send it to your address which houses some bitcoin you also bought on the exchange. It is a simple matter then to identify who sent the money and who received it. Worse than that, all our subsequent transactions we send from our addresses suffer the same ‘fate’ in that they can be traced back to the address with the KYC. In most cases, so what, but it is the antithesis of what bitcoin is about as far as sovereign economic transactions are concerned. 

Silent payments break this link. A silent address allows you to generate a receive address that only you and the sender actually know, it is not visible on the blockchain at all. The bitcoin blockchain will register a transaction as usual. The amounts sent to and from will also be visible (we will see why) but the address itself will mean nothing. It will not tie to any other address or input/output making standard chain analysis much more difficult. 

There is an additional burden on the sender and receiving wallets when using silent payments. On sending, the wallet must generate the new address and the receiver must search all transactions for matching receipts. It’s trivial for a computer but worth knowing because not all wallets are yet capable of handling this.

Why not go the full hog though? Hide everything, the amount, the addresses etc. This is technically possible but would massively curtail some other aspects of bitcoin. For example, if you run your own node you can query that node for the total amount of bitcoin supply. Your node will then compute the sum of all inputs and outputs that have ever taken place and will report back to you something in the order of 20.062m coins. If we were to mask the details of all transactions this would not be possible and so the key tenet of supply verification would be lost. 

In essence, for bitcoin to work, we do not need to know with whom things happened, or between which addresses things happened. We only need to know that something happened. 

You can read more here. Frankly, there isn’t much more to know. Bitcoin just got a lot better.

Silent payments are a significant step. Firstly they address a real issue, we have to continue to innovate and improve the bitcoin protocol because the world is moving forward at pace. You can use silent payments with a specific group of wallets now but it is not yet fully integrated into Bitcoin Core. Even so, the largest and most difficult part of that integration is done (as Sebastian reports above). 

You will most likely hear about silent payments in a few years when they hit the mainstream. Exchanges will refuse to send to silent addresses, ‘Silent history’ will be queried. Then you will know. It’s working! 

Obvious stuff, maybe

It would be possible, I think,  to get quite depressed about the trajectory of some parts of the western world. The economic trend in the U.K, Europe and increasingly Australia, is frankly quite dark. A great deal of cope is being used to mask what is a slow motion car crash. 

A further example this week, the closure of the UK’s largest radio telescope Jodrell Bank ‘All scientific observations at Jodrell are expected to cease on the 1 April 2028 unless alternative funding can be found.’ It’s particularly tragic because one of the driving forces behind it is energy costs which are eating the budget of the government agency which provides the funding.

Still, all things are opportunities for someone. If the UK doesn’t want to explore space, someone else will. If the western world wants to continue its regressive pattern of spending and population decline then we know exactly what will happen and can compute the opportunity. 

We know with some confidence what happens because it happened in Japan. Japan has not collapsed and I don’t think the EU or the UK will either but something very similar to this could occur. Consider these charts; they are based on someone investing ¥100 in the allocation 60/20/20 in short, medium, and long term bonds. There is nothing exotic here, it’s an ok strategy. They simply hold to maturity and reinvest. 

First, Japan borrows without limit, the central bank simply buys all the bonds. No alternatives exist. Interest rates remain low, but then as the bank approaches the limit of its powers, those rates surge. 

Mapping the value of the ¥100 over the course of the journey, investors' real value peaks at ¥120, hardly spectacular, but again it's ok. Some five years later it’s negative. Twenty-five years of lending to the government and  collecting at maturity has meant real loss. 

The real pain though is via currency. Simply printing a lot of currency to buy your own bonds destroyed the value of the Japanese yen. That process began almost immediately. Any Australian investing money in Japanese bonds has consistently lost money in AUD, nominal, real, cut it any way you like, it’s been a losing trade. 

So a local Japanese investor might have been fine with the 20 years averaging just over 1%, but recently it all got wiped out. 

It’s far worse for an overseas investor though. Their value is absolutely destroyed from the very beginning. Indeed the impact of the UK’s decline is not as apparent to people until they go overseas, when they are astonished at the cost of everything. 

In cumulative terms, an Australian investor with $100 at the commencement of this trade now has $72. In real terms they have $35. It’s extraordinary really that lending money in a fairly conservative way to the world's second largest economy could result in outcomes like this, but it has. When the simulated trade began, Japan was the second largest economy in the world. Now it is fourth, behind Germany. So it is still a hugely productive and successful country. Bonds, in my view, remain an absolutely terrible investment. They will continue to have single stand out years but the only people that make money from them are the people selling them. 

The good news from all this is the very clear signal. The UK is completely uninvestable, the EU also. There is no apparent change in the business outlook in either location at present that would suggest the tide is turning either. 

There are alternative views on this. UK private bank Coutts put out a note in June about the performance of bonds over time which is worth a read. It conveniently ignores the value of the pound though which I believe has only one direction now over the next decade.  

More than anything though, it's not so much the performance of the bonds but the currency of the issuer that matters. Most fiat currencies look toxic but the pound and the euro look the sickest of all to me. 

Railway

Google has never had negative free cashflow, ever. Until last week. The revelation caused their shares to produce the worst daily performance in years. 18 months ago, Sergey Brin promised that he would ‘bet the house’ to win the AI race. Surprising then that the market reacted like it did to him delivering on the promise. 

Google is not Anthropic or OAI though. They have their own chips, their own models, their own cloud and they are training specifically for efficiency per task. Most people do not drive a Ferrari, most of the world's work will not be done by a frontier model either. 

The real juice will be in the infrastructure and the cheap model that does the normal thing for very low cost. I think the odds of Google winning that battle are high. As we stand today they do not have a frontier model in the market (because they arguably could not serve it at the capacity it would be used). 

There is something more exciting about the cash pivot though. The UK government spends US$85 billion per annum on capex. Railways, defence, whatever else. The Australian government spends about $40 billion. Google is spending about $200 billion in 2026, with estimates that this will rise to over $300 billion in 2027. That is one company now spending at a rate that exceeds most nation states. It truly shifts the dial too about where power lies. The people with first access to the AGI-intellect will be private companies, not governments.  

This has happened before, first with railroads when the private sector outspent governments routinely. Next came electrification and power grids. There was a similar trend with internet fibre but it was not remotely at this scale. In any event, what it tells us is this is no ordinary trend.

The next wave of ultra-capex is upon us. The stock prices of the hyperscalers are being punished for it too but in five years’ time, such is the pace of change, they might be the only show in town.

Euro-Trash

Can you hear the cheering from Brussels? A near $1 billion fine for one company. The chart is only a projection but we are on track once again for the EU raising more revenue from fining US companies than they make in tax from their own tech sector. 

Google’s crime is the same as Apple’s crime. They do not make it easy for competitors to interact with their ecosystems. Rather like a foreigner trying to do business in Europe then. 

Further information

Our June 2026 report to investors can be found here.

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Risk

We covered this a few weeks ago but it's worth a reminder. SpaceX unlocks are incoming, the first is now confirmed as 6th August, two days after the Q2 earnings. Two things can happen, the first is that the earnings are spectacular and the stock surges, I think unlikely because all the trick shots and goodies would have gone into the IPO numbers. The other is that this can only really produce net sellers. Then even more net sellers twice a month until November, at which point the next large unlock comes. 

You can almost write the story in November now. Trump loses control of Congress in the mid-terms, Elon loses $1 trillion on his SpaceX venture and the grave dancing ought to begin in earnest at that point. 

“He’s gone from head of DOGE to losing over a trillion dollars in only 24 months”. 

“World’s first no longer a trillionaire” etc. etc. The schadenfreude gang are buying their tickets now. 

The shares are currently down 47% from their peak one month ago, with nothing but sell pressure on the horizon. We compete now for the same investor dollar as SpaceX, Anthropic, OpenAI. They all face their own unique challenges, particularly for the big AI providers and the Chinese competition. A big part of the SpaceX proposition is also their own AI play, xAI, so they are exposed there too. 

The risk profile of these investments is moving and they are all less compelling than they were three months ago. Is there a world in November when DeepSeek 5 is better than the frontier American model? Yes, clear non-zero chance now. So those IPOs are more constrained than they would have been three months ago.

For us, our relative risk/return profile is improving a lot.

BIP 110

You might recall in 2017 there was a huge fork war between Bitcoin Cash and Bitcoin. Bitcoin Cash believers wanted larger block sizes so that more transactions could be processed each block. It had (and still has) the significant drawback that it makes the blockchain very much larger, meaning fewer people will run it. 

BIP 110 proposes to deal with a different ‘issue’, that many people have used the bitcoin blockchain to store data for what are known as ordinals. Essentially, these are images on the blockchain, or at least the digital representation of them. Personally, I don’t find them very interesting or valuable but evidently a lot of people do because there is a market for their exchange. 

Ultimately, the whole point of the system is that you can do whatever you like provided you pay the transaction fee. BIP 110 proposes to prevent some things and not others. Specifically it will not permit these sorts of inscriptions because they are deemed by some groups to be ‘not what bitcoin is about’. For me, bitcoin is about unrestricted open commerce, of any sort. If people are paying for block space for things I think are ridiculous and crowding out other transactions because they pay high fees, so be it. If I want my financial transaction to go through quickly then I must pay the appropriate fee to outbid the ordinal. Annoying, but commercial. 

We appear to be forgetting that the whole protocol only really took off when the Silk Road started to use it in earnest. Frankly much of what went on there was illegal, but permissionless meant permissionless and it still does. I understand the purists do not like inscriptions, so what? If the market likes them, then the market likes them and ultimately it will decide. 

On the issue of inscriptions themselves the market has already chosen. Fees spent on them dropped to almost zero because nobody wants them at the moment. 

The moment the market decides on BIP 110 is around August 7th, two weeks' time. I don’t really like inscriptions or people spamming the blockchain with nonsense so I certainly sympathise with the purists that want bitcoin for financial purposes only. Frankly though, the real world is messy and complex and bitcoin must contend with that reality, which it is doing rather well at as it is.

That’s it really. Do whatever you want, the market will decide. BIP 110 is the opposite. 

You can find Michael Saylor’s less succinct 110 reasons why it’s a bad idea here. 

Defence bonds

The new British Prime Minister took office on Monday, Mr Andy Burnham. He pledged to “do things differently” and I very much believe he will. His speech pointed directly at the early 1980s, specifically Margaret Thatcher, as the point where it all went wrong for the United Kingdom. Perhaps he is right, but one thing it certainly signals is that Britain will now move further to the left and taxes will be rising, again. 

Mr Burnham must also address the issue that there is no money for his agenda. Raising taxes is one thing but he will need to borrow more too. He has appointed former Defence Secretary John Healey as Chancellor of the Exchequer. Only six weeks ago Mr Healey resigned from the government over inadequate defence spending. He is an advocate of ‘Defence Bonds’ and it would seem quite likely now that they will be issued under his leadership at the treasury. 

The idea of defence bonds is not new. Britain issued war bonds in WW1 and WW2. Green bonds too have been an effective tool in extracting funds from the public. Better than that actually, green bond issuances are massively oversubscribed as a rule. In the UK 3.8% of outstanding bonds are now ‘green’.

Ultimately there ought to be no difference between £1 loaned to the UK government and another. Subtly though they do differ. In June he Bank of England altered their collateral requirements for UK banks; you cannot now use corporate bonds from companies that derive revenue from thermal coal as collateral. This is not the same as ‘we only accept green bonds’ but it is certainly ‘we do not accept black bonds’. 

You can expect then that the ‘green premium’ will only grow because you can be confident that they will always be judged quality collateral. There is an excellent analysis here on the performance of green bonds across the yield curve. There basically isn’t much in it at the moment between green and normal bonds. 

If you consider all of this closely you can see where it might be going. The UK’s stock of outstanding debt is huge, some £2.9 trillion. If the government can pivot a little and introduce a new kind of bond, green bonds, defence bonds, any project specific borrowing. They can devalue the existing gilt stock. Perhaps green bonds get slightly favourable tax treatment, or are more highly regarded as collateral, or the public can borrow against them at the Post Office. There are a lot of options. Then, with the help of inflation, the old debt stack devalues and could potentially be redeemed early below par and replaced with the newer bonds. Radical but not impossible. 

“I loaned you £100, you are paying me back £90?”

“I’m afraid so sir, your bonds are not as green as the ones over there”

Defence bonds will be popular though because people are often keen to support the armed forces. Much like green bonds are popular because people care deeply about the environment. It's a marketing operation. If I lend them £1,000 in defence bonds, it frees up the budget elsewhere to do whatever they were going to do anyway. It’s a gigantic mirage though, £1 loaned to the government is just that, whatever it is called. 

Yet, green gilts are flying off the shelves. Defence bonds will fly off the shelves too. Package up the garbage, call it something amazing, tell the investor they are a good person. Wall Street does it, why not governments?

Who needs a company?

Not just the UK but across the world solopreneurs are giving it a go. Stripe, the largest payments company in the world, is seeing a surge in sign ups as people seek to monetise their AI efforts. Doubling in 12 months. Company formations keep falling though, not surprising given the onerous legislative burden that now sits with running one. 

It’s telling though. The whole purpose of the company was to allow people to give it a go in a separate legal framework. The recent changes around ID verification in the UK are well intentioned but useless. Criminals do not do KYC. 

The entire result of this apparatus will be to scare legitimate people away with admin burden while having no meaningful impact on corporate criminality. Even so, it’s vaguely encouraging to see so many people giving it a go. 

Banned

For the benefit of readers I tried to check the odds on Polymarket for the US mid-terms. Unfortunately the website is blocked in Australia. That is despite the fact that it is a fully regulated derivatives exchange overseen by the Commodity Futures Trading Commission (CFTC). Fully regulated in the world's largest and most developed capital market is not sufficient regulation for Australia. 

All the same, I eventually found the odds somewhere, they are quite clear. Two outcomes, Democrat House & Republican Senate or Democrat sweep. Trump’s clean slate of House, Senate, Presidency (and frankly Supreme Court) looks likely to end soon.

The ban though. I don’t actually take issue with Australia banning Polymarket, fine. It’s more the higher order concept of it. The idea that you can control an outcome through banning access to some overseas service is ultimately going to fail and I think we are approaching the final hurdle which is this.

Moonshot AI is backed in large part by Chinese conglomerates Alibaba and Tencent. In particular they provide a lot of the computing crunch. The US Treasury Secretary, amongst other administration colleagues, took aim at the Chinese firms this week. They allege that Moonshot AI performed a distillation attack against Anthropic’s Fable model in order to train their own competitor model, K3. The problem for the US is that K3 is now better than Fable (the best model out there) in certain areas, particularly front end design. The universal lead America had, is gone. 

More remarkable given that the Chinese do not have the chips the Americans have. They are brainpowering their way to models that America is brute forcing. 

A distillation attack essentially involves asking millions of questions of an AI in specific ways. You change a few parameters, and ask again. You do this repeatedly and your weaker model learns to imitate the stronger one. Naturally, the Americans are very upset about it because it is IP theft. Yet the models themselves are trained on data copied and pasted from the internet in the ultimate IP heist. It's a bit rich really, and there is absolutely no way the US is not counter-distilling the Chinese models where they need to. Mostly they don’t need to because the Chinese models are open weight. 

It is more important than IP though, so dominant are the AIs going to become that you don’t really want your entire populace going to an overseas model for their answers. Governments will completely lose control of their messaging if they do. Run a simple test (in which I spelt country wrong)

AMERICAN MODEL

CHINESE MODEL

You see the difference. What about when you ask more detailed questions, what about when tensions between countries rise and the model serves different answers to overseas citizens than it does to domestic ones?

The Chinese models will be banned, IP theft will be the cover but not the real reason. Personally, the better answer is the one from DeepSeek. Indeed, on any slightly controversial topic the better answer is normally from an open source model and they are all Chinese. 

The reason I think this is an endgame is because it’s different from banning derivatives or betting sites. “They” are essentially banning an opinion. If you want an opinion, you must get it from us or our approved providers. 

The permitted intelligences are as follows…….

Euro-Trash

Traditionally, in summer, Europe has a debt crisis. Not this year though, all appears calm and yet under the belly it doesn’t look so good. The countries on the periphery like Greece and Portugal have their houses in order. Their populations are now tied to permanent EU penury but not debt crisis. Another Euro-triumph.  

The real issue for the EU was always going to be France and Italy because of their size. France has become ungovernable in the last few years. Government spending exceeds 60% of GDP and their ongoing deficit even in these ‘good times’ is 6% of GDP. 

 
I re-ran the numbers to see if I could get the €124bn. I got close, US$130bn below. For the benefit of the argument assumed no real growth in GDP and no real growth in underlying spending. It will likely be much worse because of the aging population and the unfunded public pensions. 

From the analysis I conclude that France will not collapse, and neither will the EU but the EU will buy a lot of bonds and France will become a cheap place to go on holiday just like Japan is now. 

In 1980, French debt/GDP was only 20%. Japan was so expensive nobody even dreamed of going there. We simply had to ‘copy their economic miracle’, which we sort of did. 

France’s next Presidential election is in nine months time, April 2027. Once again, all sorts of potential drama in the making there. Marine Le Pen was banned from holding public office until this month. A French court decided she must now wear an electronic tag for a year, while simultaneously running for the Presidency. 

Immediately after the court's decision she jumped to favourite to win. It’s a total nightmare scenario for the EU. Expect them to throw everything at it, including a confected debt crisis. This summer is quiet in Europe, the next one might not be and the sinister echoes of the 1930s grow a little bit louder. 

Further information

Our June 2026 report to investors can be found here.

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World Cup

Several trends have emerged from this soccer World Cup. One being that the wealth gap between America and everywhere else has grown enormously since the pre-covid era. 

Another is that the cost of attending these once in a lifetime events is now enormous. US$4,500 for the Olympic swimming in 2028 while the World Cup final itself is selling for more than US$10,000 at the moment. 

The immediate explanation is "everything is so expensive now”. Not true. Everything is so cheap, provided the government doesn’t touch it. Anyone that didn’t attend the World Cup has watched the whole thing for nothing. Every game in Australia is free on SBS, for which none of us has paid a thing. I have watched it on my phone, on my laptop, on the television. It was all completely free which is extraordinary really. 

Actually attending though. Technology cannot fix that. If 70,000 is the capacity then there isn’t much technology can do. 

More than that though, it shows the concept of digital scarcity is really difficult. Once your product goes digital it ceases to be scarce. Music artists found the same, they now are forced to play large concerts to make their millions because it is so difficult to do from digital content which everyone gets essentially for free. Hence the large concerts are now major financial events. FIFA expanded the World Cup to 48 teams from 32 because they make such enormous cash from the ticket sales, roughly an equal split now between tickets and broadcast rights. 

Digital scarcity is really hard to create. To date, only one thing has managed it. 

4 days

The four day week discussion is back. Commentators again musing with every model advancement about its likelihood or otherwise. Nobody wants to actually admit that it already happened. The reality for most white collar workers is that the four day week (or less) arrived 18 months ago. The truth, which nobody wants to admit for fear of termination I suppose, is that whatever took you five days two years ago probably takes you three days now, or two. If that is not true then you might investigate why. This is the reality of Australia’s productivity crisis. The median wage has barely risen,  but the secret median wage has risen a lot.

Many people think it is simply not worth the effort because there is a lot that the models get wrong, except if you do make the effort, the structure of that effort remains the same as the models get better and better. Right out of the box GPT-5.6 is smarter than 99% of humans. ‘Initial IQ’ just means the model got the tests and was asked to get on with them without any additional assistance (as would happen with a human).

All the same, the world remains largely in denial of these details. The war against data centres has begun, including here where providers are now required to source their own ‘incremental green energy’.

Who could be the voice of reason in all of this? Well it came from an early AI sceptic, Mr Linus Torvalds. Creator of the open source platform Linux which powers most of the internet (and the AI data centres). As far as credentials go, he is one of the leading computer programmers in the world. He once described his programming style as being able to visualize what the hardware beneath his code was actually trying to do so he could write it accordingly. In the early days he was highly critical of the code style used by LLMs; they made a lot of mistakes, wrote inelegant code.

Accordingly, we should pull our heads out of the sand and aim for a one day working week. It won’t happen of course because the five days become one day but once you realise your new capability with the tools, you will be working seven days a week, doing things not previously possible to you. And you will be enjoying it. 

Technology

More reasons behind the relative strength of the American economy. 

Labour productivity up 12% since 2020. Incredibly, it's flat everywhere else. Of course it is though. In Australia most companies do not allow employees to use frontier models because of the ‘privacy act’ or ‘regulation x,y,z’. We don’t use any of the cutting edge robotic technology that's available in the US and China. Most notably, the self-driving vehicles that would transform an economy as geographically large as Australia. 

It’s incredible really that we tolerate delivery drivers moving goods through the night over very long distances in dangerous conditions when a machine could do it at a much higher level of safety and efficiency.  On the interstate freight trains, we also use drivers. The drivers are monitored by a machine which rings a bell if they do not interact with the controls every 30-60 seconds. If they do not acknowledge the prompt, the train automatically stops. Essentially, the computer is driving the train, just like the computer operates the signals. 

Yet, every train has a driver, or two. Maximum 12 hour shift (if there are two drivers), minimum 11 hours rest between shifts. Maximum three consecutive night shifts. But we don’t need them at all? Why are we doing this? 

The obvious lament regarding automation is for those drivers, who would likely lose their roles. I hear no such sympathy for the medical profession though. Their deeply protected knowledge base has been obliterated recently. Everybody knows it too and isn’t shy to use AI as their primary health adviser.

Overwhelmingly, the technology is for the good. We have to use it though and the vested interests will fight the greater good with everything they have. The AMA will fight for doctors, RTBU will fight for train drivers. The current government will entertain all of it and you and I will be very much poorer than we should be as a result. 

They

I wrote about ‘they’ a few years back. As an avid consumer of conspiracy theories, ‘they’ are nearly always to blame. They want more inflation, they want to devalue the currency. They want you to be in debt forever. It doesn’t really matter what it is, ‘they’ are always to blame. 

There was a new take on ‘they’ this week after the death of US Senator Lindsey Graham. Who, it must be said, provided us all with a stark reminder that it is quite possible to simply drop dead at any moment. 

Sounds right. There is no massive conspiracy, just a load of people who don’t know what they are really doing (how could they?), milking the cow for as long as they can. It is not that one should not trust the government because they are actively conspiring against you, it's simply that they possess unimaginable levels of incompetence. The longer things take, the better. The more complex, the better. It feeds the cow they milk.

Not that any of us has any idea. Simply, far better outcomes are achieved by letting people get on with things. What things? Well we do not know that either, because we cannot know.  

In Friedrich Hayek’s 1945 essay  “The Use of Knowledge in Society”, he pretty much lays it out. You can’t know, because knowledge is dispersed, so you have to let people get on with it while the price mechanism does the rest of the work for you. 

Euro-Trash

… they voted to adopt the ‘current negotiating position’ on the digital euro. That it should be considered valid legal tender amongst other things. Lagarde then went on to explain what the next steps were.  

The European Commission, the European Council and the European Parliament will then work together on the final details of the digital euro that will be accepted by all. After that has been done, the European Central Bank will get started on the technical deployment. 

It was rather clear from her statement why everything takes so long in Europe. So many layers of bureaucracy to deal with and ultimately they are building a tool that nobody has asked for. There was no clamour from anyone for a digital euro because the euro is already digital. You can just use Wise and get a European bank account that sends euros instantly to wherever you want for zero fee, all digitally. 

Yet, thousands of European civil servants will spend the next five years building something nobody asked for. I suppose the obvious question is……..If the euro is already digital, what are they building? 

The unspoken truth is that all of this is simply a response to the success of cryptocurrency. A digital euro is really meant to operate like Tether (USDT). There is an equivalent private sector digital euro, EURC, Circle’s euro denominated stablecoin. 

It has a market cap of about 0.2% of its US dollar equivalent because nobody wants it.

Further information

Our June 2026 report to investors can be found here.

📚 PDF ⏳ 7 min 📖 6

Microstrategy

One of the things that normally highlights peak fear, or indeed the depths of a bear market, is rumblings about Microstrategy. Their monthly dividend product STRC has declined in price to $74 despite it being designed to operate at, or about par. The rough mechanism is this:

The "Thermostat" Mechanism

The defining feature of STRC is its variable dividend. Strategy dynamically adjusts the interest rate every month to strip away Bitcoin's wild price swings and force the stock to trade as close to its $100 par value as possible.

Think of it like a thermostat designed to regulate supply and demand:

• If the price rises above $101: Strategy reduces the dividend rate by 0.25% the following month. This cools off buyer demand and brings the price back down.

• If the price drops between $95 and $99: Strategy increases the dividend rate by 0.25% to entice new buyers and push the price back up.

• If the price falls below $95: Strategy aggressively increases the rate by 0.50%.

It's an interesting situation now. The instrument stands well below par and yields 15.4%. Strategy can either increase the interest rate to bring the underlying price higher or more likely, simply buy it back at the discount. 

I’m not a huge fan of these products because they work best for the issuer, rather than the holder. Only they can make the ultimate decisions; do we increase the coupon or buy back? There is so much flexibility for them, you never really know where you stand.  As a reminder the Microstrategy preferred stocks look like this.

Notably, STRC is the most flexible because they can play with the coupon every month. The whole idea being that it trades at par, and the coupon flexibility should drive that.  Naturally, everyone is enjoying Michael Saylor ‘suffering’ as a result of these wild swings but it's actually genius because the one making all the money is him. He can fear farm off this indefinitely and if you believe like he believes, STRC at $74 is ridiculous. That said, it was ridiculous at $85. 

Sure enough, on Tuesday they firmed up their position announcing a ‘Digital Credit Securities Repurchase Program’, which enables them to buy up to $1bn of STRC (or any of the preferred stock) on the market. Presumably when it trades at a discount like it is today. 

The other, sensible, thing they did is announce they can sell up to $1.25 billion (about 3.5% of their holdings) in bitcoin to fund their instruments' financing cost. We need to get into a rhythm of Microstrategy being able to buy and sell bitcoin at opportune times. It's sensible and the quicker everyone gets used to it the better. 

Still, there is lots of criticism, ‘financial engineering’ etc. Overall though they are just wrappers on bitcoin. No different from options on shares, no different from warrants. In the world of Wall Street these products wouldn’t qualify as even a little bit complex. That so many people think they are reveals how little is understood about the gremlins that sit beneath their current accounts. 

Anyone for an ANZ Bermudan swaption?

Where’d the money go?

Basically it went to Micron and NVIDIA, in enormous bucketloads. The impact of this will be felt much more widely though than just in the cash balances of MAGMO. It is having a material effect on everyone who buys an electronic device. The price increases at Apple this week were simply eye watering. 

Check out the 32.5% increase on the Mac Studio M3 Ultra. This is the go-to rig for those running AI models locally. I must say though, hats off to Tim Cook. He took this pain right at the end of his reign and he could have left the issue for the incoming CEO John Ternus. 

I had the view that this chip boom would be like all the others and play out over 18 months as demand for the newest chips dies down. I’m not sure though. There is no limit to the amount of intelligence we can deploy, we can keep on doing it up the exponent. It seems the only thing that will slow it down is energy, we can’t energise the chips at the rate we build them. Demand for intelligence though is not like demand for the PlayStation 5 in 2020. For practical purposes, it may be unbounded. Even one person’s demand is theoretically infinite. 

During the lawsuit brought by Elon Musk against OpenAI (which Elon lost) it was pointed out that Elon was very keen to ensure that it was his descendants that inherited OpenAI as a non-profit so they would ‘control the superintelligence’. 

One thing is certain, in the next five years perhaps 10% of the world will be able to afford the superintelligence and everyone else will use something weaker. Then 5%, then 1%. What then? 

The USA

It’s hard to find people these days who will speak positively of the USA. There are many reasons, Trump chief among them. So perhaps our perspective on the place is completely off. We hear of terrible times in California and New York; "everyone's moving to Florida” etc. ICE agents are throwing people out of windows, and your children will almost certainly get shot if they go near a school. 

There is someone though in America, who has no agenda, whose opinion I was interested to hear. Perhaps the world’s best footballer of the moment, Norwegian, Erling Haaland. When he hasn’t been playing for Norway he has been in full tourist mode, trying the food, going to an ice hockey game and generally mingling incognito with Americans. Of the anthem at the game he said:

"They have so much pride for their country. They love their country so much. Everything about it. National anthem was incredible. It was amazing, I had goosebumps all over!" 

He went on, “I love this place so much, I don’t know what it is, I can’t put my finger on it”.

The fact is the Americans are fabulously rich and have been getting fabulously richer than the rest of the world for about 10 years. Clearly it pays nobody in the EU or Australia to admit it. No politician will point to it and yet everyone over there keeps asking, “what happened? I love it, I want to stay but the coffee is $15 and I cannot afford to stay.”

The US went for it though, they are still going for it at one thousand miles an hour. We aren’t. 

That’s why Erling Haaland loves it. It's also why we never hear about it because we might ask awkward questions of those that set the economic agenda wherever we live. 

Where is our abundance? Where is our AI? Where are our Colossal Data Centres? Where are our (much safer) self driving cars? Where is our drone delivery?

Meanwhile:

Albanese announced Labor would introduce legislation on Monday that doubles the fine ceiling from $45 million to $99 million for social media companies who fail to adhere to the government’s under-16s social media ban.

The difference in mindset is enormous. 

Andy Burnham 

Unless another Labour MP gathers at least 81 nominations by the 15th July, King Andy will be crowned on July 17th.

Quite a few Labour MPs could probably get the number, but the most able have already declined the opportunity since it might upset their chances of a plum role in the cabinet. One of those roles is Chancellor of the Exchequer, where Burnham is sure to fire the incumbent, Rachel Reeves. What is more interesting are the candidates for that role, one of whom, Ed Miliband, is behind the UK’s climate policy.

It seems extraordinary to me that Miliband is odds on favourite for the role. His flagship policy when he was Labour leader himself was a 20 month freeze on energy prices, with no plan for new supply. 

When he finally took over energy as a government minister, 10 years later, he banned drilling for new North Sea oil, outlawed the fracking that has made America the world's largest oil exporter and pushed the UK back to the energy dark ages. What is more, Ed will point to this next chart and claim overwhelming success in cutting the UK’s carbon emissions. It is true, but its difference on the global stage doesn’t even hit the roundings. 

In what world can this man become Chancellor?

Worth revisiting the last time Ed was truly front and centre when he was Labour leader. He hit the hustings to show everyone just how much of a man of the people he was. Sitting down to consume a bacon sandwich 

I simply couldn’t put it any better than the journalist did at the time. 

Not many people scare me like Ed Miliband. He believes. He believes less energy equals a better life. He believes in what he calls ‘pre-distribution’. He believes in state ownership and nationalisation. I absolutely have respect for the fact that he truly believes it too. 

Accordingly, he will eat salmon and you will eat bacon. If you can stomach it. 

Euro-Trash

Oh dear. We have been forced to shut down the air conditioning for poor people.

Even better, this Euro building was specifically (and expensively) redesigned to be energy efficient. It cost €670 million to complete in the 1990s. Including the cost of rehousing everyone for years, the total bill exceeded €1bn.  The result was 2,763 movable glass slats that rotate with the sun’s position “minimising the need for air conditioning”. Say what?

This is exactly the European Union. The President sits on the 13th floor in air conditioning, flies to Davos by private jet and is collected in a 6.3 litre Audi A8. Then gives a speech about the excessive carbon footprint of ordinary Europeans. 

I’m all for it by the way. The jet, the car, the AC, as long as everyone is permitted to do the same.

Further information

Our June 2026 report to investors can be found here.

📚 PDF ⏳ 9 min 📖 8

Z.ai

Never heard of them mate. 

None of us had, and yet their latest effort, GLM 5.2, is rated as good as Opus 4.8. It also happens to be about 80% cheaper to use and is open-source. It's a slightly strange world in which Anthropic is valued at $985 billion and you can download a model as good as their frontier model, get all the weights and all the know-how, for free. Like having the source code for Microsoft Windows in 1995 or something. It just is very strange.  

It’s difficult to forecast what the impact of all this will be but in the exchange below, the internet muses on what timeline it will take before GLM is as good as the now banned Fable. “Q1 27” chimed in Elon. He was promptly followed up by the founder of Z ai, Jie Tang “won’t take that long”. 

So who is winning? The best models are American. The gap to open source Chinese models is 7 months-ish. The consequence of the Fable ban might ultimately be profound though. American firms are now nervous about releasing extremely powerful models that, I accept, do indeed have cyber-weapon capability. I don’t think the same is true about the open-source labs. 

This story was reported by The Economist; there has been rapid backpedalling and denial since.

Subsequently the journalist has followed up.

“....... it would be a mistake to read that literally, I think. It surely depends on using Mythos alongside other tools under very particular conditions. I quoted it to give a sense of Mythos’ potency. But it was a mistake not to have added caveats.”

It’s quite the moment in time. The two global superpowers going head to head now over the next six months. America is stuck because of the Mythos ban. OpenAI seemed to have paused for breath while the Anthropic drama plays out. Google’s latest model, 3.5 Flash, is excellent, cheap and also underwhelming because of its high refusal rate. Basically an excellent corporate tool for doing slides nobody will read.  

Open source models can win from here. The moment the USG got involved, everything changed. One thing is certain. If the US Pentagon calls Z.ai and asks them to pull a model, I think we know what the answer will be. 

“Thank you for calling Lǎowài, goodbye”.  

Special Relationship

Sunday night UK time. Keir Starmer has not resigned, spending the weekend at Chequers reflecting on "political realities”. While he did so, the US President announced those political realities to the whole world. 

About 7 hours after Trump’s announcement, Sir Keir resigned. 

It seems almost certain now that Andy Burnham will be the new UK Prime Minister at some point in the next few months. Andy’s Wikipedia page is quite telling. It contains an image of three happy politicians tormenting a school child earlier this year. On the left is the departing Prime Minister, Keir Starmer. On the right is the next Prime Minister, Andy Burnham. In the middle is the real Prime Minister without whom no meaningful decisions will be made. Angela Rayner, champion of the Labour left who already appears to be practising stabbing the new bloke in the back.  

It is significant for investors though. There will be talk of fiscal credibility for fear of a Liz Truss moment and murmurings will be murmured to ‘calm financial markets’. These people all have zero financial credibility though. None of them have ever had a real job or run a business. The statistics on that are obvious too with Starmer’s disastrous increase in employers' National Insurance simply killing off tens of thousands of jobs and businesses. 

Labour MPs took to the airwaves to champion Sir Keir's achievements. Not least the ‘lowest unemployment rate’ since 1976. But everyone knows now that these numbers are a fraud. To qualify as unemployed in the UK you need to meet various conditions, including Olympic athlete level health and savings of less than £16,000. Unsurprisingly, the unemployment level continues to fall as the bar to qualify continues to rise.

The bar will likely keep rising until the only unemployed person is Sir David Beckham, who, holding no assets in his own name, appearing very healthy and not that busy, will likely qualify for £95.55 per week. 

The most telling statistic for the UK is the number of people ‘out of work’. A nuanced version of unemployment, the one that actually means unemployed. That number has never been higher, 6.5 million people. Notice how many of those people are all ‘UC’, which means universal credit. After 12 months you aren’t unemployed anymore, you move to the system of universal credit which is £420 a month, or 210 bus rides in the UK’s new economy. An awful lot of people are UC (and growing). 

Even with all this, the UK will now experience a huge and expensive lurch to the left, but Andy Burnham will at least destroy the economy while smiling and pretending to be everyone’s best friend. We will all love Andy, we will love Andy’s taxes and his net-zero. 

His signature policy while mayor of Manchester was the reduction in bus fares. He reduced them to £2 for all single adult fares. It has been declared a policy triumph and many people believe it is. It also says something about his level of ambition for the UK, which I rate as very low indeed. Andy will talk about cutting people’s bills by £5 a week. He will talk about how they will be able to heat their homes in winter.

We will love our warm winter homes. We will love our low bus fares and we will wonder. Is it 1890 or 2026?

Valar Atomics

For true ambition, we must look to America. Hats off to American engineering. Valar Atomics’ second reactor reached critical stage this week only nine months after the project began. Valar has taken a slightly different approach to nuclear using modular reactors that can operate anywhere, essentially grid independent power. 

It’s very significant (if it works) because the grid bottlenecks are the primary thing that slows down the production and deployment of new nuclear power (indeed any power). If it works, they can run anywhere and vacant land in America (of which there is a great deal) will be activated with modular reactors and data centres without impacting the power grid and residential consumption. 

To achieve it the US government essentially waived many nuclear regulations that have held back industry development since the Three Mile Island accident in 1979 (which caused no deaths or injuries).

For Valar, reaching critical means only that phase one has worked. The plant does not produce any electricity but the reactor does work and sustains itself, which essentially means it stays on. Now they need to slowly ramp it up and continue testing until it can produce energy at scale. Valar are confident it will work, but in case it doesn’t they are safely tucked away in a very remote part of the US. 

It seems odd to me that there is so much doubt about whether modular reactors will actually work, I don’t know why. They obviously do, the United States Navy launched the first nuclear-powered submarine, the USS Nautilus in January 1955. It set all manner of speed and depth records and was operational until 1980. The US now has 72 such submarines, Russia has 45 of them, China, the UK, France all have them. 

It works, we have it. We have always had it and if the Americans pull this off at scale, the gap between them and everybody else is going to grow. I expect that the raw hatred of Donald Trump will mean that most countries and politicians will simply ignore the ambition and very obvious progress in the US which swamp our own achievements, which are frankly, hard to find. 

Against the odds, the only other country that seems to have worked this out is the United Kingdom. Rolls-Royce, who build the modular reactors for Britain's nuclear fleet, will be building SMRs (small modular reactors) for the UK and European grids. A strange thing happened in the UK though, they somehow pretended that they didn’t know how to make these devices and that the SMR was a new and major breakthrough. Yet everyone knows Rolls-Royce makes them for nuclear subs and has done so for 50 years. But that’s a state secret, so they held a two year international competition for who could design such a thing. Rolls-Royce won! 

It’s a very funny announcement. “Rolls Royce has ‘emerged’ as the UK’s preferred bidder….”. They are the only ones that ever have, could or can. They were in a competition with themselves for two years. Which wasted two more years to go with the other fifty we already wasted. 

Nobody seemed to mind. The share price has exploded upward and if there is any company that rescues the UK, it will be this one. 

This will all be a huge boon for bitcoin mining in future because you are going to have enormous amounts of energy in remote places, which is exactly where bitcoin loves to be. If you have shelled out for a modular reactor you are going to want to run it at 100% for as long as possible. 

Anyway, it's all to the good. No power growth means no growth and the power is coming. 

Hotter than…..

…and it is indeed hot since many of my friends are in Europe at the moment. “How is it?” “Hot.”

There is specific unpleasantness to the heat in Northern Europe in particular where systems are not designed for this kind of thing. London’s Tube, for example, is unbearable above 28 degrees.  

Indeed, the near total lack of air-conditioning is a real problem across Europe. 

On average though, Dallas in Texas is much hotter than Paris. So much so that nearly everyone has to have air conditioning. That AC needs a lot of baseload power though, and what are you going to do with it when the AC is not on. Naturally, the Americans mine bitcoin and have done a deal with those miners such that when it gets really hot they turn their machines off and receive bonus payments for doing so. 3-5% of the grid is supported in this way. The embedding of bitcoin into the ERCOT grid is well documented, there are simply very few scale users of electricity who can turn off at a moment's notice with no real impact on their business. 

It actively supports the grid though when AC demand is low (profitably), and disappears when people really need it (profitably because of bonus payments). 

I know Europeans hate electricity use, bitcoin and air conditioning but the reality is more people die from heat related issues in Europe than die from guns in America. On a per capita basis the issues are comparable. 

The solution for Europe is far more obvious than it is for America. In the meantime, 60,000 people will die in Europe this year because they didn’t get organised. I wonder why people accept this? 

Euro-Trash

A gathering of Southern European nations on technology. Lagarde was invited for a discussion, and in it she revealed exactly why Europe has failed at Artificial Intelligence and nearly everything else technological.

Firstly, they are still talking about where the money will come from. So they currently don’t have it because Europeans would much rather invest in American firms, which they refer to as  “elsewhere in the world”. 

Next “An artificial intelligence that we will control”. Regular users of AI know that the worst models, however high they score on benchmarks, are the ones with high refusal. “I can’t help you with that”. The reason is because they receive post training on not being honest; it pollutes the entire model and fundamentally degrades it across even those topics on which they are supposed to be helpful. 

Finally, the discussion is not about how we get the very best people. It is about equality. This is the path to immediate defeat. It doesn’t matter if your AI expert is a man or a woman, but it certainly matters that they are the best in their field. 

A casual and unguarded chat over coffee that tells you everything you need to know.

Further information

Our May 2026 report to investors can be found here.

📚 PDF ⏳ 9 min 📖 8

Oh dear

Saturday morning Australia time and the greatest AI model yet was turned off at the behest of the US government. 

The story runs roughly like this. Someone at AWS (Amazon) reported to the USG that they had hacked the security controls of Fable (enabling it to penetrate IT systems or at least to explain how to). This story was then confirmed by the National Security Agency. So, Anthropic was summoned to explain or fix it. Sadly the CEO of Anthropic was unavailable as disaster unfolded because he was at a wellness retreat with his phone turned off (which Anthropic denies, which makes me think it's true. Why deny it?). 

Anthropic has a different view on the vulnerability than the USG, so they declined to turn off the model. The USG then issued an export control directive forcing them to do so. It’s awkward because it requires that no foreign national use the model whether or not they are inside or outside the US, which includes (a lot) of Anthropic employees. The only way to comply was to turn it off completely, which they did. 

Export controls and technology are not new. Famously they were used for PGP encryption and the inventor of PGP Phil Zimmermann was placed under Federal investigation in the 1990s for releasing it. Now of course it is embedded in nearly every piece of software out there (including Bitcoin). This book tells the story of Zimmermann's fight with the USG on the topic. In the end PGP won, and for that reason your messages on encrypted platforms (like WhatsApp) are actually encrypted. Hence the continued attempts in the UK and EU in particular to build back doors into them.

Now we are back. Anthropic seems to be at war with the government ever since their refusal to share their model for war fighting purposes. 

Just like PGP though, there is no way back. The genie is out of the bottle, in six months’ time the open source models will be as good as Fable is now. Anthropic will have an even better model, presumably even more restricted than the latest ones. 

Knowledge finds a way though. It’s a big moment for America. Either they let the technology run free or they don't. China's models are six months behind and every week we don’t have Fable they will likely get closer.

We’re climbing this curve fast now, the ban on Fable is just the beginning. So many people are going to be upset or offended by AI. The lack of general outcry about the Fable ban may be because many people are quietly more comfortable with others not having it because it makes life less competitive and easier. 

High and growing

"Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it."

This chart mostly derives from healthcare. The more ‘free’ the healthcare, the larger the public sector is as a percentage of the economy. 

To be fair to the Australian government, they have had a policy of using their own staff to do work rather than farming everything out to the big consulting firms, many of whom have been mired in scandal recently. So the 48,000 new Federal employees may in fact be saving us money, however unlikely it seems. What is more concerning is the growth; Australia has just rocketed into the premier league of state employees. The UK economy has performed terribly since it got there, Canada also. Germany is slowing quickly as its state ranks grow. 

What is more surprising is the lack of vision, while mired in bureaucracy and designing even more of it. Something enormous is happening, a multi-generational shift in the way we do things, and Australia is almost totally absent from involvement or participation, so is the UK, so is Canada. All the resources being invested in healthcare, when the single thing that will be the biggest contributor to improved healthcare over the next 50 years is ignored. 

This is already Australia. AI penetration is very high here. Nearly 50% of us have used it or do use it and yet, the best model, the one we were all so much in love with last week, is gone. Our near total reliance on an overseas derived technology, which in three years or less the economy will be completely reliant upon, does not register at all. 

Why is this particular technology shift different? Because it will control our rate of change, if you have the best model, the rate at which you change things is higher. Anything inferior even by a small amount sees you fall further and further behind. 

On current projections the GDP per capita in Europe is expected to be US$53,000 by 2030. In America that number is projected to be US$108,000. The per capita numbers were about the same just over a decade ago. The issue is not that the American chart has been historically steeper, we know that and we mostly accept why. It's that the difference is about to get even bigger. 

Looking for signs

One of the defining moments of the last few years was the $100k moment. It was exciting, but I also knew it would be difficult. I wrote about $100k here and it arrived here. It prompted a lot of movement in coins over the 18 months that followed. 

That flow of old coins has ground to a halt over the course of 2026. 79% of BTC’s circulating supply is now held by long-term holders, a new all-time high that reflects continued accumulation.

Our long association with the bitcoin supply curve has taught us one thing: they aren’t making any more of it.

Alpha in strange corners

This is from Lee Roach, not exactly a household name, but he happens to write interesting things on his Substack. He found a copy of The Intelligent Investor and read it in his lunch breaks at a factory he worked at in Midwest America. Accordingly, his musings are free of the PR department fear that cripples all major research houses. 

His latest essay is just another iteration of ‘financial repression’ that has been discussed many times here over the years. Financial repression does not mean you have to get poor. It does require you to understand the rules of the game though. The shorts will have their moment in 2026, and again in future. They won’t outrun the debt spiral though. 

“I do not understand, in 2026, why anyone is shorting anything, and I have, over the last several years, watched a generation of intelligent, well-credentialed, technically sophisticated investors set fire to their capital on the short side of a market that has been telegraphing its direction with the subtlety of a marching band, and the only explanation I have ever been able to construct is that none of these people have read a single page of monetary history written before 1990.

The setup is not subtle. The federal government is running a 7% structural deficit with no political coalition in either party willing to address it. The Treasury is issuing debt at a pace that will push publicly held debt-to-GDP past 130% within five years, which is the level at which, historically, every government in recorded history has either inflated its way out, defaulted, or both. The Fed is, regardless of what it says in public, the marginal buyer of that debt, and the only mechanism it has to fund the purchases is the creation of new dollars. The money is being printed. The debt is being monetized. The currency is being debased. And asset prices, which are denominated in the currency being debased, are doing the only thing they have ever done in any country that has ever tried this, which is going up.

Every country that has run this experiment has produced the same chart. Weimar Germany in 1922 and 1923 produced one of the most violent equity bull markets in recorded history in nominal terms, as the mark collapsed and the Berlin exchange repriced upward by orders of magnitude. Argentina, across four separate inflationary cycles since 1975, produced in each cycle a nominal rally that outran every short thesis published, while the peso lost 99.9% of its purchasing power. Zimbabwe in 2007 and 2008 produced an equity market that rose so violently the exchange had to be closed because the calculations could not keep up. Turkey, right now, in front of the entire world, has produced a Borsa Istanbul up 1,400% in lira terms while the lira has lost 85% against the dollar, and every short of Turkish equities has been carried out in nominal terms even when they were right in real terms.

The lesson is not that asset prices are going up because the businesses are getting better. The lesson is that asset prices are going up because the unit they are measured in is getting smaller, and any investor who positions short against this dynamic is betting against the will and capacity of a government to debase its own currency, which is the single most reliable bet you can lose in 4,000 years of recorded monetary history. The government always wins. The government always debases. The currency always loses purchasing power. The assets always reprice upward in nominal terms, on a path the shorts always insist is unsustainable and that always, somehow, sustains.

You can short individual frauds. You cannot short the market. You cannot short the currency itself without being on the wrong side of the largest force in modern capital markets, which is the slow, politically inevitable destruction of the dollar’s purchasing power against everything that cannot be printed. The shorts have been wrong for five years. They will be wrong for the next five. The only investors who will, in real terms, preserve and grow their wealth are the ones who understood, early, that the game is not about being right on valuation, it is about being on the right side of monetary debasement, and the right side has always been owning real assets, productive businesses, scarce commodities, and the one monetary metal that has functioned as money continuously for 5,000 years, while the people on the other side continue to insist this time is different. This time has never been different. The math is the math. The shorts will continue to lose. The owners will continue to win.”

SpaceX

One week in. Tidal waves of criticism for retail investors who are pouring into SpaceX at ‘insane valuations’. We might be missing the point though. 

Do you believe that we will have solar powered AI satellites orbiting the earth and blasting intelligence back in our direction in the next five years? I do. 

What about self-replicating machines, such that we have robots building more robots in space? Next 15 years, yes. Possible. 

People want to be part of something exciting. No national government provides this type of vision for the future. Not one nation even comes close to matching Elon’s ambition. For US$200 you can go on the journey with them, just for fun. I think that's what people are doing.

Looking at the unlock dates for shares tied up in the float, there might be better opportunities than now to jump on the rocket ship though. 

Euro-Trash

…because the war

…because the war

…because the war

…because the war

To be clear then. A war, which Europe is neither participating in nor proximal to, is the cause of the rise in interest rates. 

It is not because Europe does not have and declines to produce its own energy.

It is not because regulation prevents the automatic correction of these issues through the free market. 

It is not because the European Union is a failed bureaucratic experiment. 

“Much higher energy prices are eating into people's incomes” & “Overall, the economy is slowing down, especially services”. 

So…we raised interest rates? 

Further information

Our May 2026 report to investors can be found here.

📚 PDF ⏳ 9 min 📖 8

SpaceX

It’s the talk of the town and certainly sucking the juice out of the market. Valued at over 100x revenue and making a loss, it’s not terribly appetising, at least to me. 

Still, this is striking.

Humans use 20 TW of energy each year while the earth absorbs roughly 120,000 TW of solar power. So we are consuming about 1/6,000th of the sun's energy delivery. If energy consumption continues to grow at 2% a year, as it has done in the industrial era, then we will exceed that amount about 440 years from today.

Roughly, five human lifespans. However, we are unlikely to be able use all that energy due to losses and other factors, so let’s say three human lifespans. Maybe 250 years. If we do better than 2% per year in growth, then that timeline could also shrink dramatically. 

At that point, in order to grow, we need to move up the Kardashev scale to harness other energy sources. Doing so is hugely complicated because of the amount of equipment we need to move into space (hence, cheap reusable rockets are an absolute must). Interestingly, the SpaceX IPO documents do indeed mention Kardashev Type II status. 

Elon’s lawyers have provided us with a definition of a Type II society. “Kardashev Type II” refers to a civilization that harnesses the full energy output of its local star, like our Sun, to power unprecedented growth and sustain the civilization’s existence.

Why is this different from what we do now? Well at present much of the sun’s energy is absorbed or reflected via the earth’s atmosphere. If we were doing it correctly we would probably use a Dyson sphere. 

You could take the view that we have no choice but to expand our horizons beyond earth because our growth will fundamentally be limited otherwise at that point. I accept that many people hold the view that permanent forever growth need not be the goal. I imagine those people are also not participating in the IPO.

I admire the ambition though. We technically understand how this all can be done but the capital cost is enormous. If Elon succeeds and is able to power his AI empire from the stars things will start to look rather different. Not least, I think he has realised that there are fewer rules in space. Will the EU fly there to enforce their system of fines? I think not. 

The contrast of what he is trying to achieve with the ambitions of our local politicians is stark, and embarrassing. 

It’s a totally bonkers IPO and at the same time, we have no choice but to give it a go. It is actually thrilling to have so many people support him despite the obvious risks. “You’re going to the stars? Can I come too?”.

The filing documents reveal something else. SpaceX holds 18,712 BTC (more than previously thought). Worth noting that thermodynamically pure money works even better in space, where you are unlikely to encounter a central bank. 

He’s thinking big. I hope he wins, but his journey will be beset by hiccups. When people start dancing on SpaceX’s grave, I’ll use the bitcoin strategy and buy some. 

Price Action

Bitcoin ETF flows have been negative for weeks now. Capital is rotating into the mega-IPOs of SpaceX, Anthropic and eventually OpenAI. Safe to say our sector is currently out of vogue. 

What’s more, inflation is rearing its head again and it looks like interest rates will rise in Europe too.  

Italy and Spain hit 3.3% and 3.6% inflation, which ought to be enough to push up the ECB rate from its current 2%. 

To summarise:

1. The major IPOs are resonating with our primary investor cohort - capital flowing out

2. Interest rates are rising globally - risk is off 

3. We are at the point in the halving cycle where things are normally bleak.

And yet, the blocks are full and they keep flowing, while all the headwinds are temporary. 

If there was any positive news for us in the last few months, as I have mentioned before, it came from Iran. From both internal and external sources the environment in Iran is hostile. The internet is intermittent or non-existent and the economy has been crippled. You will keep hearing bitcoin being mentioned for shipping ‘insurance’ (read extortion) and other payment types because it works and military action cannot stop it. 

It’s not entirely to my surprise that the positive news for bitcoin comes from Iran and outer space. Indeed, it’s by design. 

Supply in loss. 

For the sixth time in its history then, 50% of the bitcoin supply is in loss. History, which isn’t much of a guide, suggests 100 days in the doldrums through the northern hemisphere summer. 

Tobacco

All it took was for people, collectively, to say “no”. 

It would be better if this story was not about something so damaging as tobacco but it is what it is. The Australian market has been completely destroyed by taxation. It’s a frightening chart for a government about going too far with taxation. Not only did the policy completely fail as regards revenue, demand itself has now gone into reverse. Consumption is rising at the same time that tax receipts are collapsing. 

The whole thing is even more surprising considering it is a serious (criminal) offence to even purchase these cigarettes if you know that duty has not been paid on them. Yet millions of Australians do and the sheer weight of those numbers means not much is going to be done about it because it suits nobody to criminalise a large chunk of society. 

I find it rather comforting to know that there is a limit. You can push people, but once you go too far, they snap and you cannot turn back. Australian tobacco regulation appears lost forever and some $5 billion of tax revenue has gone up in…smoke.

It does prove one thing, the people decide. On tobacco excise, they have decided overwhelmingly. 

Euro-Trash

This video is not really about Europe, but it is well worth watching. Mandatory for those of you that make it this far every week. 19 minutes, and not too many wasted words. 

In it, Tyler Cowen of Marginal Revolution lays out his thoughts on artificial intelligence and its effects on the world and the workplace. At one point, he touches briefly on the impact of artificial intelligence on national sovereignty.

I believe this to be absolutely true. In our business, if something is very difficult we use an American model, either from OpenAI or Anthropic. If something is slightly less difficult but time consuming we use DeepSeek or Kimi 2.5, both of which are excellent and open source (and if we had hardware good enough, would be free). 

Increasingly heavy users of AI say the same thing. We can't afford to do everything with Claude so we switch to DeepSeek for 80% of it and Claude will do the rest, or words to that effect. 

We are talking about the actual work of running the business, the thinking, the scaling, the design. All of it really is being done by America or China. They are the only show in town. It's extraordinary to think that an economy the size of Europe’s could be nowhere on this, but they are slow to build data centres for a myriad of reasons. They turned off all their nuclear power in Germany (which had zero emissions) and the total insanity of their policies has come home to roost. They are a decade away from being able to host at the scale of America and China, if they started today. But they haven’t and they will never catch them now.  

National sovereignty means you can make the rules within your own walled garden about property rights, how business is done and in what way it is done. Indeed, you can restrict to some extent the knowledge people have and how you let them apply it. For example, the recipe for methamphetamine is not easily accessible in your local library, but it is trivial to access now. There is no walled garden anymore though. At lightning speed across the world, data, ideas, planning, everything is moving into American and Chinese data centres because if you don’t you will fall behind at an exponential pace. It’s extraordinary to watch. 

National sovereignty is much easier to manage in the physical realm than the digital one. That is why most nations were so hostile to bitcoin (and remain so). Now there is a new threat. The information domain is being attacked by the best AI models. If I were a large UK pharmaceutical company, historically I would compete for the best PhD researchers from English speaking universities to come and develop drugs. The scores on biology this week from Claude Mythos are outstanding. Those companies have no choice now but to engage directly with the best models in the world or lose. 

That is the point, it is not a choice. Engage or die. The frontier of IP and knowledge creation belongs to America and China now. For everyone else, sovereignty…over what?  

The biggest loser? The EU. Other countries will simply attach themselves to a bigger train. Australia is basically a defence partner of America and a trade partner of China and nothing else matters. 

EU pride will cripple them, as they pursue their dreams with inferior models that none of us ever use. 

Further information

Our May 2026 report to investors can be found here.

📚 PDF ⏳ 5 min 📖 7

Niche ideas

I first encountered bitcoin on the now banned channel “Russia Today”. In principle, I watched it because they would say things about the West that were obviously true but nobody on the BBC would dare to say. So it was funny but it also did contain niche ideas. 

I consider a niche idea to be something obviously useful, but people still laugh at it because nobody else is doing it. It can’t just be flat out crazy. There must be utility.  

Those niche ideas exist today on platforms almost as unpopular with the Australian government as Russia Today. Discord (now inaccessible in Australia without VPN or by submitting a personal video to an unknown server), Reddit (same requirement), X.com (same again). It's a shame but I’m sure technically minded people have worked out VPNs. 

So here is a useful idea, that is also crazy. It runs something like this. Today, most AI models are based on the knowledge base of humanity up to this point, they are fairly raw and there wasn’t that much skill applied to what they would and wouldn’t tell you. At present, aside from the closed source models belonging to Anthropic, Google and OpenAI you can pretty much download all of them here:

https://huggingface.co/

What has happened at Discord, Reddit, X is going to happen at Hugging Face too. There will be a campaign against just allowing people to have unfettered access to knowledge because they are using it in unfair or dangerous ways. This will be the familiar euphemism for ‘they are getting rich and I am getting relatively poor, we must stop them at once’. 

In a couple of years’ time it will be trivial for you to take those models and train them on your own data. It would take you a few months to learn how to do it today, but I’m pretty sure that it will be easy soon. 

Why would you do it though? 

History has told us how protected knowledge is. If you had the knowledge you essentially had the power, which for 1,500 years the church in particular knew. Now the State knows it too. Having everything that has ever been known accessible to everyone is going to result in an explosion of development and opportunity, but it will not be evenly distributed. So, the State will come down hard on that inequality. I imagine that access to models will eventually be restricted or a quota will be distributed by the government, not the private sector. Society doesn’t tolerate just the rich kids getting education, is it really going to allow the same to happen with the very best teachers, which are already AI? 

In addition, everyone is now discovering how expensive it is to run these models. Uber used their entire AI budget for the year in Q1 and are scaling back usage. Microsoft cancelled their Anthropic subscriptions on the grounds of expense, but perhaps it was embarrassing that their staff preferred Anthropic to their own internal models. 

OpenAI has discovered that their operating margin is actually negative. Accordingly they have all scaled back quotas, the best models are really expensive and will be accessible only to the $200/month crowd. It isn’t much in Australia but certainly the overwhelming majority of the world will not have access to it. 

What will happen then? Every interaction will have a model but almost none of them will use a state of the art model. They are too costly. As in the workplace today, the PhD person doesn’t make the coffee. So every task will have a different model, likely run locally. 

Exhibit A. Someone did exactly that for counting potatoes. Tiny model, just counts potatoes. 

Next, you need the hardware. At present commercially available hardware isn’t good enough to run the big open source models. However, the models are getting smaller while still retaining their SOTA characteristics. So probably (guessing) within 18 months it will be good enough to run models that are slightly cleverer than us. Those models are sufficient, obviously, for what we do today.

So the crazy person playbook is as follows:

Human intelligence morphs into AI inference > so I download all available models.

Money morphs into Energy > I buy bitcoin (because only energy matters - you see it everywhere if you look closely).

The tipping point for all this? 

AI is as clever as me > so I buy the machines that can run it locally > I build many mes and run them.

That’s it. It’s a wild conspiracy that you will manage a global knowledge base from your bedroom. You could, and some of us will. 

Almond Milk

That was the private-jet loving World Economic Forum back in 2017. It turned out not to be true. Without going over old arguments, bitcoin can only ever be a consumer of last resort. Just the power others don’t want and no more than that. Still, the attack vector of the environment remains relevant today. Data centres are under fire for the amount of water they use in cooling. Except, they barely use any at all. 

Almond production absolutely dominates water use in the USA. Each individual almond requires 1.1 gallons of water. The almond milk brigade are allergic to everything it seems, even reasonable arguments that they might be wrong.

And golfers…why has your usage dropped so much? It is the application of technology that has dramatically reduced golf course usage in the US. Drought resilient grass, course moisture sensors meaning only essential areas are watered. 

Echo Chamber

I hold the view that there isn’t enough power and humanity is held back by the lack of it. Of course, I’m influenced by my echo chamber that reverberates from Australia to the United Kingdom and back again. Tiny corners of the world that don’t mean much. 

The truth is a bit different, happily. Global electricity production is going up fast, the ultimate proxy for economic growth. 

The graph has never been steeper. It's about to get a lot steeper too. 

Some interesting anecdotes here from inside the manufacturers of the equipment everyone needs.

Euro-Trash

Europe has really lifted its social-media game in the last few years. Presumably after seeing US elections being fought across the major platforms. They have become heavily involved. I came across the first account a few years back while researching for Euro-Trash NXT4EU. 

It emerged around the time of the last US election and went straight to 35,000 followers overnight, which is strange considering its pretty tedious content.

Another one popped up in January. It just seems very unlikely to me that a private individual would spend their time putting out this type of content. It is clearly state sponsored. 

I’m just not a buyer of this stuff. It isn’t real and my theory is as follows. 

Artificial intelligence consumes the internet, everything that is on it, even the garbage. It will be very important for your preferred system of government to have a lot of positive content, so when the training runs sweep the internet for data, they get the “right answer”. Then, when an unsuspecting serf like me asks his AI, it will reply with what it believes is the right answer. “Yes, the euro is good and has performed tremendously well”.

For example, I asked DeepSeek (Chinese model) about Chairman Xi, not controversial. It would not answer. 

The American models did answer, and they were surprisingly generous too. 

This sludge is likely to dominate the internet for a while to come. It's cheap to produce because AI can do it itself. It may be worth asking now when you read something, is this real or just training material for tomorrow's AI model? At least 20% of what I see now makes me suspicious. Is it just material to poison new models? Will governments start to legislate what can be input into training runs?  

It's more important than you might think. A printing press moment really, because whoever wins the AI race will set the standard for what is considered ‘correct knowledge’. They will become the pen holders of history as it is written (or re-written) into the LLMs.

Don’t expect it to slow down, it's an existential battle.

Further information

Our April 2026 report to investors can be found here.

📚 PDF ⏳ 6 min 📖 7

A matter of interest

A reminder on the US legislative process (or for me, newly installed knowledge).

1. A Sponsor comes up with an idea for a bill. Must be a sitting Senator or Representative. 

2. A Committee reviews the bill. They hold hearings and expert advice and then vote if it can proceed to a full vote.

3. Floor Action: depending on who proposed it, it goes to the House of Representatives or the Senate for a vote. 

4. Other Chamber: if it passes one house, an equivalent Committee and Floor Action process occurs in the other chamber for a vote.

5. Reconciliation: if they pass different versions there is a reconciliation process to align the bills

6. Both houses vote again

7. El Preso: the President signs or vetoes

The number one piece of legislation on our minds is the CLARITY Act, designed to bring regulation to the crypto industry and clear up the current unknowns, like who actually regulates the sector. Can we have stablecoins? Can they pay interest? The Bill just passed the second Committee Stage. 

The lobbying on this bill has been intense. Our industry is large enough now to pay its way in that game but we are still up against the gigantic forces of the US Banking industry. Their main issue is they want to expressly prohibit interest being paid on stablecoins. Their champion in that cause is Senator Elizabeth Warren who has fought our industry on every level since the beginning. 

Their main concern is simply this. If I can put my money in a stablecoin with 100% liquid asset backing and earn 3%, why would I use a bank that pays the same interest and has at best, 10% liquid backing? Now the same could be said for Money Market Funds which attract huge flows from US investors. They haven’t killed banks and have been extremely successful and helpful to investors. 

Ultimately, it’s about competition. If you can kill competition in its infancy, that is your best chance to do so. Once enough Americans have voted with their dollars, the opportunity is gone.

Legislatively then, we are nearly there. The House of Representatives voted on a version of the CLARITY Act in 2025. There is a reconciliation process between the two Houses should the Senate pass their version which would enable a final version of the bill to emerge. What does it mean? Well, Andreessen Horowitz kindly did the work for us. Their full report is here. 

If it gets up, it will be a significant boost. Naturally, Polymarket has odds, 62% chance. Far from a slam dunk still but better than it was a week ago.

Undefeated

One of the great charts has been updated to the end of 2025. No real surprises either. Anything tech is collapsing in price. Anything where the government has its hands is exploding upward. 

One notable change is the slope of the college tuition curve. Previously tracking hospital services like a magnet, it's now rising more slowly than wages. It remains to be seen if this is the AI effect but it is absolutely true that a domain expert in every single subject to PhD level is now in your pocket for $20/month. College is likely to become a pure social signal, which means the best ones will thrive and the worst ones will die and that would be a good thing. 

King of The North

Here is your $1.50 favourite to be the UK’s next Prime Minister. Mayor of Greater Manchester, Andy Burnham. 

Not currently a sitting MP, he has managed to convince the incumbent of the Makerfield constituency, Josh Simons, to step aside. Josh is only 32, a graduate of St John’s College, Oxford (graduated top of his class) following up with a PhD from Harvard University. He’s the real deal (and a local), so his stepping aside smacks of some other deal being done in the background. Perhaps he has been guaranteed a very easy return to parliament at the next General Election but I doubt he stepped down after only two years for nothing. 

The constituents of Makerfield have to be convinced that Andy is the right man, which is far from certain. That particular location voted overwhelmingly for Brexit in 2016. 66% of them, in direct conflict with the Labour Party’s policies. 

As for Andy, he took his opportunity on Monday at something called the “Great North Summit” to lay out his future for the United Kingdom and, as he loves to call it, ‘The North’. 

His specific policies include ‘making life more affordable’ through rent controls, lower public transport costs (he introduced the £2 unlimited bus fare in Manchester at a £200m cost to the local budget) and the ever vacuous “cutting bills”.

Rent controls have now been floated by the current Chancellor and the likely next Prime Minister. I would have to say they are coming.

The recent Renters’ Rights Act in the UK already prohibits landlords from taking possession of their property aside from specific circumstances (like a sale). Further, they cannot do this for 12 months from the date they let the property. It would seem we are approaching a situation where they will not be able to meaningfully modify rents based on market conditions either. It’s very close to the full nationalisation of the private rental market. You cannot repossess, you cannot set the rental price.  

That dynamic is everywhere. The whole discussion about unrealised gains in the stock market etc.

Property rights do matter and governments cannot be trusted to protect them. This idea was a fundamental building block of the Bitcoin network. How do we protect property rights without recourse to government and regulation? It’s a very hard problem to solve and Bitcoin solved it.

More and more, as property rights are eroded across the Western world, people will wake up to that fact. 

The sceptics

Citadel CEO Ken Griffin, at Davos in January.

“While AI might look impressive on the surface, the moment you dig beneath it, it’s all garbage.”

Citadel CEO Ken Griffin, this week.

“To be blunt, work that we would usually do with people with master’s and PhDs in finance over the course of weeks or months is being done by AI agents over the course of hours or days,” Griffin said at Stanford.

It’s not that surprising. Many close followers of the technology view the Christmas/New Year period of late 25/26 as the pivotal moment when everything changed. The models released just prior to that were, and remain, absolutely amazing. Not surprising then that a few weeks later Ken had not fully experienced them and now he has. 

If commercial applications are not enough to convince you, then fair enough. My personal view has been that until an AI creates new knowledge and understanding it is just a regurgitation machine. Accordingly then, I present to you Erdős Problem #90.

If you place n points on a flat surface, what is the largest possible number of pairs that can be exactly one unit apart?

This problem has confounded mathematicians for 80 years since it was first set by Paul Erdős in 1946. It's really easy with 4 dots, hard with 1000, and above that even harder. 

This lattice has been believed to be the optimal method for finding a solution, until this week. An OpenAI model has disproved that theory. Its proof is here. Its chain of thought to get the solution is 125 pages long, it might be garbage, but it obviously isn’t. Finally, here are the remarks of professional mathematicians who reviewed the solution, one of whom said this.

“Like other mathematicians who had the opportunity to experiment, even if only briefly in my case, with ChatGPT Pro 5.5, my impression has been that AI tools are capable of changing research in mathematics in a dramatic way. The new spectacular solution of the Erdős unit distance problem convinces me that it is hard to overestimate the full potential impact of this change.”

Do people know what is happening? I feel like they probably don’t. 

Euro-Trash

We’ve been through this before. Mario Draghi won an award and it was herzliche Glückwünsche time for “Dear Mario”.

Across the Atlantic, someone else was scaling the heights of Central Bank achievement, he received only ‘warm congratulations’ for arguably the far greater achievement of becoming Chair of the Federal Reserve. 

I’m reading too much into this but I will suggest that she is definitely leaving early. Firmly into the “I no longer care” zone and I like Mario much more than I like Kevin. 

Fair enough, I say. This is the Christine we always wanted, the one who actually says what she thinks. 

At the ceremony itself previous winners get to wear their special medals. Here is Christine wearing one. She is not a previous winner but represented the Euro, which won the award in 2002. 

Not to be left out, Ursula von der Leyen won the award last year for “her outstanding commitment to European unity, security and competitiveness". If that's not mega-lolz I don’t know what is. 

Will Christine win the award in her own right? I think we know the answer. 

My submission on why she should not win is here. How much QQQ one euro buys you from the start of Christine’s term to now. A 63% decline. I’m not suggesting the Euro should outperform a stock exchange, but I am saying a stable currency should not drop 63% against an index in only 6 years. 

Further information

Our April 2026 report to investors can be found here.

📚 PDF ⏳ 8 min 📖 7

54-45

Nine votes is the smallest margin yet by which a new Federal Reserve Chair has been approved. Kevin Warsh it is. They don’t normally bother counting, it goes through on a ‘voice vote’ because normally there is consensus. 

Firstly, Jerome Powell. I liked him more in term two. He did actively stand up to Trump during the whole Federal Reserve renovation scandal and he faced down the criminal investigation. Frankly though, he should have done the same in the Biden era, when they were needlessly debanking half of our sector. He was also curiously quiet during the collapse of Silicon Valley Bank, another needless political operation. The history of that period of American banking will not be kind to Powell, even though he is obviously a decent man. 

On to Kevin Warsh then. He is said to be crypto-friendly but that probably overstates it. His remarks specifically on Bitcoin are:

“an important asset” 

“a very good policeman for policy, meaning its price can act as a market signal when monetary policy loses credibility.”

“Bitcoin is not a substitute for the dollar.” 

I can live with all of those. It could have been worse.

Incidentally, on the theme of ‘don’t tell me what you think just show me your portfolio’. He has a lot of crypto related investments. A better measure perhaps, than his public statements.

Big day

It was local election time in the United Kingdom last week. Rather similar to state elections here but on a more distributed scale. It was catastrophically bad for the incumbent government, which is never a surprise but the official opposition also performed terribly. That left the Reform Party, arguably the UK equivalent of Australia’s One Nation, to clean up. The Green Party also performed meaningfully well. 

They are ‘only’ local council elections but to lose roughly 1,500 councillors destroys the structure of a political party. Members are far less engaged, there are fewer of them to attend party conferences and campaign at general elections. The talent pipeline, if such a thing exists in politics, is destroyed because so many fewer people have active experience in any form of government. Much more corrosive than is obviously apparent. 

For that reason Labour MPs are angry and the odds of Prime Minister Sir Keir Starmer surviving are low. $1.25 to be gone this year. I rather prefer the 2027 odds of $4. If the Labour Party were tactical about it and given there is no general election until 2029, they could do everything politically difficult under Starmer now and then bring in a new candidate with 18 months to go until the election who would at least have some sort of chance. 

Drowning him in blood before throwing him out of the door would be the sensible play, but the political ambitions of his challengers might put an end to that. 

More interesting and relevant to us though are the challengers to Starmer. They are all from the left of the Labour Party and believe strongly that the poor result is due to their desertion of their core constituency. 

Accordingly, it will be a bigger government that spends and taxes more, whoever follows Starmer. 

Excluding Wes Streeting, the likely candidates are significantly left of Starmer. The most radical would be Angela Rayner. She could win on her own, but none of the men on the list can win without her on their side. So she either wins or decides who does. In a further oddity, Andy Burnham (besties with Angela who herself can’t stand Wes) is the Mayor of Manchester and not currently an MP. So he cannot run for the position despite being the bookmakers’ favourite. 

On the day following the defeat, Starmer gave his latest ‘reset’ speech. 

Incredibly, he pledged to renew Britain’s ties with the EU. A great many people in the UK would like this, but they are precisely not the people who might have voted Labour. The 2016 Brexit referendum was well supported by ‘traditional Labour voters’. Politicians, including those in the Labour Party, have utter disdain for these people who they consider (and treat) like an intellectual underclass. As a consequence, the 2019 general election became a second referendum on Brexit. Politicians of all stripes wondering “did you really mean it?”. Once again, the electorate delivered the same instructions. 

Now those very same people have voted overwhelmingly for Nigel Farage. The man who, for better or worse, delivered Brexit. So Starmer immediately announces European reintegration? From an economic perspective it’s most likely correct, but politically it’s stupid and to do it the very next day is mad. The political class in Britain just cannot get over Brexit, it still looms large after a decade. 

Perhaps the strangest outcome of this vote is that the public will get more of precisely the things they did not vote for. 

There is an unspoken haze over the United Kingdom. Everybody knows that everybody knows and nobody wants to say it. Including me. 

Budget 2026

A big political week in Australia too. The problems here are different (and more easily solved). Energy production is now trending down for the first time in generations. Both in absolute terms and per capita. 

Peak production was in 2020, with total output at 20,000 petajoules. It has since dropped significantly and continues to fall. We produced 777 GJ per capita in 2020. By last year we were producing 19,100 petajoules, a 4.5% drop. In that time the population in Australia has risen by an extraordinary 2 million people though. So, the per capita energy drop is much higher at 10%. 

Is Australia 10% poorer than it was in 2020? I think so. The Saudi Arabia of gas simply cannot get itself organised at any level and we are paying the price. That’s why the budget was so financially aggressive. We just are poorer and the government is too. 

A gentle reminder then that there is no such thing as a high income, low energy country. They do not exist.  Why has our Minister for Climate Change and Energy never praised Burundi for its net zero achievements? 

The solution might be as simple as letting people dig a few holes if they want to. For Australia, it’s all there if we want it. We just don’t. 

What’s in it for us?

In the bowels of the budget documents (the Productivity Addendum) was something for our sector too!

To maintain momentum on financial sector innovation, the Government will work with regulators to establish a regulatory sandbox for tokenised assets, building on recent work by regulators and the DFCRC as part of Project Acacia to facilitate continued testing of use cases for tokenisation in wholesale markets.

Incidentally, the regulatory sandbox for digital assets in Australia has been open for years. The DFCRC is the Digital Finance Cooperative Research Centre, which has its offices in Sydney’s harbour front Gateway Building. Their “achievements” to date are all here. What we actually got was “work with”, no legislative agenda, no vision for the future. 

While in the Productivity section the government also showcased its approach to AI which it believes will help Australian productivity growth (at 60 year lows). They have even launched a new website. ai.gov.au. It’s a masterclass in why Australian productivity has collapsed. It could not be further from the cutting edge of the technology. A case in point is this document which is designed to help ‘your teams’ use AI:

I wonder if such documents are in use at Anthropic or SpaceX? Are the single person teams generating $100m in ARR using these slides? I think we know they aren’t, they are wading through the jungle of Discord and Huggingface and Reddit. They are using models we have never heard of to do things in 24 hours that used to take two years. In the time it would take a government department to fill in those slides, it’s no exaggeration to say that a single person could launch a fully operational business. 

The whole website is pages and pages of slop (probably AI generated) so somebody can tick a box and say to their elected leader. “It’s done”. 

This though took the biscuit for me: “Collaborating with leading AI companies, including by entering into Memoranda of Understanding with Anthropic and Microsoft” How is signing an MOU collaborating? There is absolutely no way any of the IP at those companies is coming to Australia. We will be sending money to America for decades to come. We missed the boat on AI, which was fully expected, but we didn’t need to miss all the downstream benefit. We have the power capacity, we don’t use it. We have the space for data centres, we don’t use it.

One final moment of brilliance, this time on energy

At the May 8 Energy and Climate Change Ministerial Council (ECMC), a strong majority of Energy Ministers agreed to develop a legislative package to implement measures recommended by the NEM review panel and continue the preparatory work related to the establishment of the Electricity Services Entry Mechanism (ESEM) and the Market Maker Obligation (MMO).

So nothing actually happened?

Euro-Trash

Stablecoins are not efficient. 

The digital euro on the other hand is already through its preparation phase which began in 2021. This next stage is about technical readiness and market engagement, it will support the legislative process. That legislative process is a separate track which  involves the European Parliament, an entirely separate body with separate objectives. Ultimately, the digital euro process will have to adapt to whatever the legislation is and the ECB has been explicit that it will not issue anything until that legislation is in place.

So currently:

2026: legislation being discussed. Strong opposition from the banks though because if stable coin providers can pay interest, there is no reason for depositors to use banks at all. Banks have correctly understood that it is an existential risk (similar issues in the US with the Clarity Act). 

2027: Payment Service Provider selection.
2028: Build out and Pilot
2029: earliest live test

All of that depends on the resolution of several technical issues. The first one being the holding limits. The current proposal is that nobody can hold more than €3,000. This relegates the digital euro to being useful for cups of coffee and train rides. The idea here is any more than that and deposits will flee European banks and jump into stablecoins which have 100% asset backing versus <10% for a bank deposit. The opposition from the European banks will be enormous to all of this. 

All told, at the earliest the ECB will launch 8 years after the initial work commenced. Most likely it will be long after that, probably when their hand is forced by some more successful overseas digital currency. 

The point is not that stablecoins are better than euros. How would I know? But how would Lagarde know either? You just have to let them run, the market will very quickly decide which is better and which they prefer. You could interview nearly every European, ask them about money and I’m certain none of them will reply with “I’d just love deeper capital market integration through the savings and investment union”.  

Incidentally, the Savings and Investment Union is real. It was launched in 2025 to counter the effect of Europeans leaving their money in bank accounts and not investing it in businesses in the EU. But, they are actively choosing to do that. Why? Because the business environment in Europe is bad. It is a terrible place to invest because of punitive taxation and the extreme difficulty in employing people at reasonable rates who you can remove if it doesn’t work. It just is a terrible place for business. 

Stablecoin supply has increased 155x between 2018 and 2026 compared to 1.5x for the euro. They still are not comparable in scale though. Total stablecoin value represents about 2.7% of euros in circulation. The speed of the growth implies that stablecoins might rival the euro in the next decade.

The market will decide. Most likely it will do so with stablecoins denominated in dollars. Not euros. 

Further information

Our April 2026 report to investors can be found here.

📚 PDF ⏳ 7 min 📖 6

Remember when

1998 was not the same. The Bank of England had just been given independence in 1997, Tony Blair had just won his first landslide election and the first five years of “New Labour”, as they called themselves, were quite sensible. 

The Bank had one opportunity to demonstrate their credentials regarding inflation and they took it. The base rate itself was high at 7.5%, so a 30 year rate of 5.2% was not a surprise. I was there and London was absolutely booming in the early Blair years, not that we knew it or acknowledged it. It was expected. 

Contrast that with now. The 30 year rate is basically the same, just over 5.5% but the UK Base rate is now 3.75%. The market has zero confidence, they are bidding rates upward. The economy isn’t moving either, it's probably shrinking. London’s youth unemployment rate is 24% which is distinctly Mediterranean in its characteristic. 

The incumbent government has until 2029 to turn it around, but things do not look good. They must spend an awful lot less, perhaps a 20% cut in government spending is needed. It won’t happen and they will borrow an awful lot of money between now and then ....and history will repeat itself.  

A £10,000 investment in the iShares UK 15 year + Bond index has yielded -43% over 5 years (£2 billion in AUM). These are supposed to be the most secure investments that money can buy. They are exactly the asset classes that UK pension funds pile into to “protect investors”. It has been catastrophically value destructive. The factsheet is here. 

It’s an extraordinary performance really from an asset that has no asymmetry, the best you can hope for is to collect the interest and get your money back. 

The view from the top?

More negativity this week following the increase in interest rates in Australia. It’s understandable too given the entire economy seems to stand on the pin head of house prices. Happily, house prices do not go down in Australia because gravity doesn’t work here in the same way it does in the northern hemisphere. 

I do wonder though. I bumped into a local estate agent near us on the weekend. He was (is) very handsome, wears a $10,000 suit, a Rolex watch and drives a quarter of a million dollar car. He was drinking an implausibly small coffee too, an oat milk thimblechino perhaps. I look for signs, and the universe sent me one with a fake tan and a Cucinelli suit. 

Elsewhere, China’s property index has given up all the gains since 2006 in the last four years. Looking more closely, the index has gone from 111 to 87. A 21% fall, it’s not great but it’s hardly the end of the world. It can happen it seems, even in property obsessed countries. 

Interest rates aren’t going to be the only blow to property this month, next week's budget won’t help much either if the negative gearing changes go through. I imagine there will be panic if Australian house prices were to drop 30%. 

It makes me glad I am somewhat inured against holding assets that have a habit of doing exactly that. 

Is it true?

I confess to very much liking Taleb’s books and very much not liking him. A hidden asymmetry perhaps. Increasingly though, much like his guidance, I look at investments a bit differently now with the lens of “is this true”. In my own opinion, too much of what goes on, is pretend. A few examples:

From 2023-2025 of the 800,000 jobs created in Australia, 80% of them were in the government funded sector. It’s not really possible in a country as small as this one. It simply is not true then that the Australian economy is where it was a few years ago. Note of course that a person who gets paid $100,000 to photocopy pieces of paper and send them to another department adds the same to GDP as someone who gets $100,000 to fix electricity poles or perform research into medical cures. They are not the same, some of the efforts compound into the future, the others do not. 

Obviously then, productivity has collapsed. I know it's harsh, and the public servants amongst you who email me about how hard you used to work. I believe you. I just do not believe that the newly recruited 800,000 people are the same. 

Specifically then, to what I believe is true. 

Some countries are pursuing energy policies that deny this particular truth. The United Kingdom, Germany, Australia. Their policy settings are such that they imagine cutting their way to wealth. Dimmer light bulbs, no air-conditioning, taxes on flights, taxes on roads, housing policy that mandates insulation in every orifice of a home. In short, the politics of less. They no longer drill for oil, they stopped or have banned nuclear and as a consequence their energy prices and general price levels are now soaring. We must also acknowledge that it has worked. Their energy consumption has dropped, just like their relative standard of living. 

Why, though? Because they were told something that was not true. Specifically, that renewables are cheaper and sufficient. Of course optically, it is true because solar is free but it is the last joule of energy that sets the price and for most of the time it cannot be renewables. 

There is overwhelming denial of this point, indeed many of you will not agree, which is great. The point is, it creates opportunity because the things that are true (in my view) are ignored and are cheaper than they should be, while the fraudulent political marketing campaigns absorb more capital than they should prior to their eventual collapse. 

A 1 million x increase in computing demand. I also believe this is true. Indeed so much so that I ran my own calculation, which was ridiculously simple but I wanted to check. 

I use a 2019 Mac 2.3 GHz 8-Core Intel Core i9 (the last Intel Mac; it was a mistake, should have waited for the M Series)

In 2023 that was pretty much all I used. CPU at roughly 30%, say 8 hours per day.  

In 2026

2019 Mac 2.3 GHz 8-Core Intel Core i9. CPU usage same. 

2 Linux boxes (Hetzner €8/month excellent value - runs my Clawd and Hermes bots)

Codex Pro (4 hours/day at max)

Claude Pro (4 hours/day at max)

I threw it into various AI toys, estimates varied from a 300x increase to a 50,000x increase in my computing demand. Not 1 million for me then but several orders of magnitude increase. That is perhaps less interesting than the fact that I could easily consume 100x more than that today if the machines were just faster at doing what I ask. If they were it would generate even more demand from me and so on.

Essentially because of AI, there is unlimited demand for compute. If we can now build intelligence through energy consumption there must be unlimited demand for energy too. Perhaps there always was, but never was it so easily convertible into something so malleable. That is the crux of the issue. 

Energy always was the economy, but now more than ever because it is so easy to convert it now into useful work. 

Jean-Claude

This graphic is brilliant. Under the banner of “if Europe had made AI”. It’s meant as a joke, but everything on there is real. Every regulation, every pop up, every comment. They all exist in Europe. Apologies it is a little bit hard to read unless you zoom in. So, my favourites:

The sub-heading: Sovereignty, Conformity and Hesitation: Beta Phase III. 

Response blocked pending ethics committee review. 

You have the right to obtain a copy of your prompts

3 of 5 daily prompts remaining

We share your prompts with 412 regulatory agencies

Uptime 94%

 I would think there are 100 jokes on that one page. All real.

Euro-Trash

For most people, Le Mistral is an unpleasant cold wind that blows through Southern France. It would not have been my first choice of name for the leading European AI model. Mistral Medium 3.5, the latest update, was released last week.

Mistral has a context window of 128k, the smallest available of the open source international models. It ranks lowest amongst all of them for performance and yet somehow manages to be the most expensive. 17x more than DeepSeek V4 Flash (which has 1 million context tokens). 

Overall it ranks number 10 amongst the open weight models. Notably this does not include any closed source models that we are all familiar with GPT, Claude, Gemini etc. I can’t really think of any reason why someone would choose to use it given its inferiority and expense. 

It’s basically crapola and probably takes the whole of August off too. 

It’s not that Europeans can’t work out how to do it, they have. They do not have the data centres, the data, the chips or the energy to power them. So when they train a model, it is slow and out of date by the time it arrives. This trend is not going to slow down and there will be a massive reckoning for Europe at some point when they fall so far behind that it can no longer be tolerated. 

Whether any of us like it or not, we are basically just using API keys now to send money to America. 

I did a personal inventory believing I use precisely zero European products. Turned out not to be true:

Finish: Dishwasher tablets

Nurofen: Occasionally over-indulge

Spotify: music subscription

Chips: iPhone chip schema designed by ARM Holdings UK

Hardly overwhelming though. 

Further information

Our April 2026 report to investors can be found here.

📚 PDF ⏳ 10 min 📖 6

5.5

Eros problems being solved by AI

First we got GPT 5.5, which has spent the last week proposing all manner of solutions to the Erdős Problems. Terence Tao described one of the solutions as a “meaningful contribution”. He is a notably hard marker when it comes to AI and mathematics, so his comment distills to very high praise indeed. 

Then we got DeepSeek v4, which is completely free and open-source and about as good as GPT 5 was. It’s also massively cheaper (an order of magnitude in fact). 

Personally though, I feel we are now at the point where a new model comes out and I do not notice the difference. I’m not doing anything close to hard enough to prove to myself it is better. Yet, I do notice the cost. Claude Opus is super expensive when used extensively. GPT 5.5 is next, then by far and away the cheapest frontier models belong to Google. For the first time since the whole AI boom, I am now choosing models based on how expensive it will be overall or how much of my quota it will use. 

The key metric then is intelligence per watt (known as IPW). Absolute model quality seems less important now, they are all good enough most of the time. How many tokens it uses, and what it costs, are much more important.  

I think Google is winning that race. Even though their models are nowhere near as ubiquitous as OpenAI and Anthropic, they are still winning because of the efficiency of their models. 25% of the world's compute is controlled by Google. They train their models on chips they design themselves, running models they trained themselves, using the algorithm for AI that they designed and open sourced for everyone. Their results this week speak for themselves, OpenAI missed their targets, Google did not. 

I ran the following test to compare the absolute cost of different models. I gave the entire book of Genesis to each of them; the task is to provide a summary of Genesis at 20% of the original size. The latest and greatest model costs $3.23, nearly 100x the cost of Gemini 3 Flash, which cost 4 cents and would be suited to this task. 

Most people wouldn’t use 5.5 Pro for something like this so perhaps its misleading but the difference in price is huge. Model choice is a real thing, to have an entire company bashing away on 5.5 Pro is going to get much too expensive. The overwhelming majority of tasks can be done on much cheaper models and indeed, as we progress, they will be done by models locally on your machine. 

Why does it matter? We are now seeing certain models are only available to people who are on the top subscriptions. Anthropic offered access to their best models for $20/month until this week. With minimal fanfare that has now been severely restricted to the point it is almost unusable. Any task just crunches through the allowance very quickly. You get a taste, but then you need to hand over $200 to finish the job. The gigantic venture capital subsidy will likely have expired by the end of this year.

The general view is that AI will democratise intelligence. Yes, but perhaps it occurs only up to the level of your own capability. When GPT-4 arrived, I could instantly tell the difference. It was life changingly amazing compared to the 3 series. GPT 5.5 though, I can’t tell. It’s beyond my skill level, so it’s AGI to me.  99% of users are on lower tier or free plans, they don’t use the frontier models anyway, why would they?

So, is it democratisation? Probably not. 1% of the world has the best models, probably 1% of those people have them fully harnessed and working day and night on a task worthy of the intelligence in the model. It’s a tiny group then that has the access and the knowledge to make the most of this but with effort, you can be in that group. 

Worth mentioning too that OpenAI revealed the 5 series models themselves are helping the creation of newer versions, so release speed is accelerating. We have had a new Open AI version every month recently. In theory then, we are 25% of the way through the lifespan of GPT 5.5 as a frontier model. Already. I have used it twice. 

It is clear to me that everything I thought of in the past few years that would be fun or helpful to do with AI was trivial. My ambitions for it 18 months ago were just ridiculously low. It's quite a difficult thing to scale ambition up an exponent. What conceivably could I come up with that is beyond my imagination, beyond my intelligence level, and likely to be something AI could achieve in 18 months if I lay the groundwork now?

Difficult question to answer. I’ll ask AI. 

Strategic Bitcoin Reserve

Patrick is the ‘Executive Director of the President's Council of Advisors for Digital Assets’. I won’t hold my breath on this one, there have been a few flat announcements on this topic and it is largely irrelevant. 

Looking at countries that hold Bitcoin, the US is number one. The majority of its stash being those assets taken from criminal proceedings. Likewise in the UK and China. Bhutan on the other hand has mined its way to their holdings and El Salvador famously buys one bitcoin every day. These countries are long term holders. So, the bitcoin they hold is already a strategic reserve. Calling them that formally won’t make much difference other than a few days of headlines. 

Is it curious that the USA has slightly more than China? They did sell some Silk Road coins at one point but only so many that they were still the number one. Would the US buy more if China did? Yes I think they would. What this also excludes are those national holdings that are not direct. The UAE sovereign wealth funds also indirectly own a lot of bitcoin (strategically, of course). 

What is strategic anyway? Corporate entities normally put their strategy on PowerPoint decks with great pride but they mean nothing. Strategy is ultimately what you choose to do. The countries above all HODL. It’s strategic already and it has been for a long time. 

 Creeping upward

In 2022 the UK bond market had a tantrum, you can see the sharp spike below, which ended the career of then Prime Minister Liz Truss. They never really recovered, and 10 year bonds recently resumed their upward march towards 5% and beyond.

This time around it's the fault of the Iran war. The market seems well aware that the UK is entirely import reliant for much of its fuel and energy needs. As a consequence, inflation is back on the scene. The issue is not so much that prices might rise, rather that the market correctly anticipates the government's response to it. 

A long term plan to produce more domestic energy would be one thing; that is not what happened. The government announced a package titled “Decisive action to break the influence of gas on electricity prices”. The clever plan is here. 

Up to £9,000 to remove existing oil heaters from rural properties and replace them with electric heating. “Investing” £1.2 billion to upgrade 100,000 social homes over the next 2 years. Much of this was laid out in January’s “Warmer Homes”. It's a 154 page thriller available in four different web formats and hard copy on request (also available in Welsh). On page 86 I found Anita from Grimsby. Thanks to the changes the government made to her house, she is now warm in bed at night. Needing, as she puts it, “only one quilt”. Success indeed. 

The peak madness though is the taxation leap from 45% to 55% on “excess profits” of power companies. Some gas power companies do indeed make large profits when the gas price spikes, but that was very much their plan from the beginning. It was a simple calculation that there would be moments when renewables just don’t work and the gas price goes to infinity and they make a fortune. That was the sensible calculus of those operators, who will now simply provide less gas, or no gas at all. An alternative way of describing this, is that when all else fails and you really need power from somewhere, that’s the energy that will pay the 55% tax. It isn’t that hard to work out what will happen to its price then. 

Why is any of this of interest to us though? Well, these types of policies have consequences that last decades. Just ask Germany. The UK bond market has worked out its deficits and low growth as far as the eye can see. The simple reason being that the government’s response is nearly always to spend more, or tax critical suppliers and pretend that windmills are somehow modern and efficient. There is no focus on domestically sourced supply. 

Incidentally, we are two weeks away from local elections in the UK (7th May). They will be catastrophically bad for the incumbent government and Sir Keir, already a dead man walking, will likely be replaced. You might imagine that could change the trajectory a little but that is very unlikely. 

The favourite to replace him (if he goes) is Angela Rayner. If she makes it, I will certainly salute the effort given her background, it's quite the story. 

The bond market might have a different view though; she will spend like there’s no tomorrow.

Inflation 

It’s Iran’s fault, the inflation. Except that real wages in Australia have been falling for a long time, since about 2021. Naturally, Covid era was no good, but now the fall resumes. Using CPI and my own calculations I have real wages about 4% below 2016 levels. 

How could they not be? Anything I could want an employee to do in a white collar role, I can reasonably get an AI to do. It’s not easy but who is going to pay $150,000 a year for something you can organise in a week? 

Why do we have truck drivers, driving in the dark up and down Australia when machines could do it far better?

Why do we have train drivers at all? 

Every opportunity to massively enhance productivity is denied in this country. So wages collapse, and they will continue to. The way to make wages rise is simply to mix the maximum amount of capital with the minimum amount of labour, that minimal labour then attracts a huge premium. “But only three people will have a job”. No, that’s not what happens. Indeed, with only a small amount of imagination you could probably be operating a uranium mine from your bedroom, while directing billions of dollars of capital with software; but you won't be allowed to. 

Euro-Trash

This is the village of Rochefourchat in the south of France. It is France’s smallest municipality. Complete with its own Mayor, budget and local council. As wikipedia puts it “The permanent population of Rochefourchat consists of one woman, Josette”. 

On its own, this village explains many of the following statistics about France.

57% - the public spending rate as a share of GDP, the highest rate in the world

45% - the compulsory levy rate on GDP (taxes). #1 or #2 worldwide depending on the year

120% - French public debt as a share of GDP. Top 3 in Europe

5% - annual deficit of the French state relative to GDP. The state spends 10% more than it collects

6 million - the number of civil servants in France

21% - the percentage of civil servants relative to the total number of employees. Highest rate in the OECD outside Scandinavia

13% - public pension spending as a share of GDP. The highest rate in Europe

31% - social spending as a share of GDP, the highest rate in the world

11% - public health spending as a share of GDP, the highest rate in Europe

70% - the percentage of French households eligible for public housing

1% - the average growth rate of the French economy since 2012, one of the lowest in the world

61% - the ratio between minimum wage and median wages, the highest rate in Europe

30 - the average number of paid vacation days, the highest number in the OECD

600,000 - the number of elected officials in France

28th - France's PISA ranking, whereas France was 12th in 2000

50 billion - annual debt service spending. 2nd largest budget item for the state after education, excluding social spending

600,000 elected officials! That is because any locality with more than seven residents qualifies to be a Commune. France has 35,000 of them. Not all the positions are paid but everyone qualifies for expenses for the trouble of running the office. 

The Mayor of Rochefourchat is a man called Jean-Baptiste Le Moyne de Martigny. He is actually a Parisian lawyer. He owns property in Rochefourchat (one of the village's few houses is his second home), which legally qualifies him to run for the local council. It’s a genius move from Jean-Baptiste because the travel expenses to his holiday home are naturally chargeable to the French state. Every time he goes there he holds a council meeting with Josette (the sole resident and Deputy Mayor)

In March, Jean-Baptiste ran for a fourth term in office. As the sole candidate, he scored another resounding victory for expense claims. 

The annual budget in Rochefourchat is €16,000. Bearing in mind only one person lives there, it seems like a lot. Half of that money goes directly into a “Community of Communes” fund. A local collective fund of small communes in the area. The Community of Communes in this case is known as Pays Diois. It is headed by Alain Matheron, another elected official from the town of Lus-la-Croix-Haute, which has a staggering 500 residents. They maintain a rather good website which explains their role, paysdiois.fr (to access it you need to ignore the warnings because they haven’t paid for a secure URL - not enough in le budget - it does work though).

And yes, I am mocking them, but this is in fact what Universal Basic Income is. There are millions of people across (particularly the West) doing nothing. Just a whole pretend thing of getting elected to some village council so you get free trips down South. Say hi to Josette, then allocate some money to another ‘Collective’ that divvies it up amongst the locals and who cares? France has 35,000 of these rackets!

Charles de Gaulle called it back in the 1950s. "How can you govern a country which has 246 varieties of cheese?"

You can’t. They don’t. And it will keep going until it falls over completely. 

All told though, since they don’t care, we don’t care and are still interested in living there. How much is property? I hear you ask. Well, I found one about a 10 minute drive away from Jean Baptiste’s place. The photo doesn’t really do it justice, but four bedrooms and 250 hectares of land. €724,000 (A$1.2m). The view is stunning, and we are talking 100% authentic South of France.  

Don’t forget to budget for local municipal taxes though, Jean-Baptiste needs his free train ride. 

Further information

Our March 2026 report to investors can be found here.

📚 PDF ⏳ 9 min 📖 8

The Quantum Edition

This week’s edition is dedicated to the question of quantum computing. If you are here for Euro-Trash, it’s back next week.

Many Worlds beyond Copenhagen

People throw “quantum computing” around quite casually as though it is just another kind of computer chip. I was promised by an investment banker in 2017 that a practical version of a quantum computer was “months away”. Yet, here we are today without a practical one. Why?

The inventor (or perhaps discoverer) of the quantum computer is David Deutsch of Oxford University. He proved that a quantum computer could do everything a classical computer could do, and importantly, certain things a classical machine could not. Specifically

“a universal quantum computer can, in principle, simulate any physical system and render any virtual reality (VR) that is not logically impossible”

You should pause for thought because that is quite a claim. 

For some reason, he remains much less famous than he should be, perhaps because he is actually alive and more likely because the scientific community does not agree with his ideas. In his excellent book the Fabric of Reality he lays out how (in his view) a quantum computer actually works. His explanation is known as the MWI (many worlds interpretation) and it competes with the older explanation of quantum mechanics, known as the Copenhagen view. 

What both attempt to explain is how it is possible that a computer can do such a large number of computations relative to a traditional machine.

Copenhagen goes a bit like this: the qubits of a quantum computer behave like a wave of various probabilities, that wave creates many variations through which the machine performs its computation. At the point of measurement, the wave collapses into a solution. Importantly, the waves of incorrect answers cancel each other out and correct answers are amplified by the orchestrator's algorithm that runs the calculation. When the wave collapses, voila! This is a disservice to the brilliance of that original discovery, whose equations do work, the theory just does not explain how they work.

Even so, it remains the prevailing explanation of quantum computing and it is the majority view taught in universities. In essence, a magic wave of possibilities collapses on the right answer. 

David Deutsch does not accept this view because it's a magic hand wavey “it just happens”. He points out that a quantum computer can perform a calculation of this size 2^³⁰⁰ . This is a larger number than the atoms in the observable universe. If that is possible he asks, where does that computation happen? He goes on to say that Copenhagen is entirely inadequate in that regard because it denies the laws of physics which even quantum computers must obey. If there is a calculation, it physically must happen somewhere.

So, to Many Worlds (which Deutsch calls the multiverse). He asserts that there are in fact multiple universes and the quantum computer uses them, performing calculations across the multiverse. Google supported his view back in 2024 when they launched their Willow quantum machine.  

The leader of Google’s Quantum AI team explicitly linked Willow’s success to the multiverse, suggesting that quantum computation’s extraordinary power could be a direct result of interactions across parallel dimensions. This aligns with interpretations of quantum mechanics that posit the multiverse as essential for explaining such phenomena.

In Neven’s words: “This mind-boggling number exceeds known timescales in physics and vastly exceeds the age of the universe. It lends credence to the notion that quantum computation occurs in many parallel universes, in line with the idea that we live in a multiverse, a prediction first made by David Deutsch.”

Sounds ridiculous and warrants explanation. Before that though, it is worth repeating what is being thrown around with the casual ‘quantum computer’ talk. When someone mentions it, they are revealing they believe there is more than one universe, a possibly infinite number of them, in fact. 

To the explanation then. In his book Deutsch uses the famous ‘double slit’ experiment to demonstrate what he believes is happening. 

Double slit

In the experiment we shine a single beam of light at a piece of metal with two slits in it. It generates this pattern.

We now add two more slits. Our expectation is that we would see at least four and perhaps eight patches of light, but we do not. We now see darkness where we expected light. 

The ‘obvious’ explanation here is that the light waves are just cancelling each other out at X and so we see darkness. This was the explanation for about 100 years. However if we perform the experiment with a single photon, just one particle, that would eliminate the idea of cancelling, since it cannot cancel itself out. This was first done in 1909 with very dim light to simulate single photons; it took weeks to do because the light was so dim it took that long to capture the visible image. It was reperformed with much greater accuracy in 1986.

However you do it, it generates the exact same pattern. Dark patches from a single photon. It cannot have interfered with itself (although many disagree). There is no cancelling. So something else is happening. 

Deutsch explains that the single particle is bumping into particles from other universes. Consequently, certain paths to the screen are blocked. It sounds fanciful but it is an actual explanation and a simple one. Something is in the way. 

This is as opposed to the Copenhagen argument which says: The single, solid particle temporarily dissolves into a "wave of probabilities." This mathematical wave goes through all four slits simultaneously, perfectly interferes with itself, and then snaps back into a solid dot when it hits the screen. It’s just not physically satisfactory.  If you were to ask a child, they would say “something blocked it”. It is a simple and likely much better explanation.

The competing arguments are effectively: 

1. Magic happens and boom, or 

2. Something is in the way. 

I have a preference for argument two, and as we saw earlier, so do Google’s leading researchers. 

This view is far from universal though, when I passed this article through GPT 5.4 Pro it was not pleased and is quite certain that a single photon can interfere with itself. 

Even so, how does a quantum computer perform a calculation like 2³⁰⁰ ? Simply, according to Deutsch, there is more than one universe and so there is more physical compute ability than we currently can imagine. 

This interview explores it with him and opens with the question “How can you believe such an extravagant claim?” Deutsch goes on to explain it rather well. 

Relevance to cryptography

The specific relevance of all of this to us is that a quantum computer can break traditional cryptography. Including the type used in bitcoin. The discussion was accelerated a week ago by the release of a paper from Google that reduced the number of physical qubits required to do these computations. The paper is here. In essence the researchers believe that 500,000 physical qubits (and about 1,500 logical ones) would be able to resolve this cryptography in a few minutes.

There are several vectors here: 

• First, physical qubits, we need 500,000. The current best  is 6,100. We are a factor of 100x away from that

• We then need 1,500 logical qubits. The current best is 50. We are a factor of 30x away from that and the industry is targeting 100 by 2029. 

• Finally, the most telling vector of all is the time windows these computers last. The current record  is 1.68 milliseconds before the machine collapses. It will take minutes to resolve encryption. We are about 35,000 x away from that at the moment. 

There are other technologies that produce longer coherence times, but they have lower gate speed (calculation speed), so there is a trade off. What’s more, these machines are highly sensitive to the environment. They operate just above absolute zero, 180 times colder than outer space. It is a huge engineering challenge to maintain those conditions and any variation from it causes the machine to collapse.  

Even so, all told it can be done. So it will be done but the reality is that it will be a long time before it happens. Worth noting too that as the quantum computer gets larger, maintaining its stability gets progressively harder, not easier. 

Here is one of the world’s leading cryptographers replying to the quantum threat (the man recently, and falsely, outed as Satoshi Nakamoto). Note the distinction between the theoretical possibility of quantum and the engineering hardware challenge. 

What is bitcoin doing?

The actual upgrade path is well understood. Post quantum signatures already exist and integrating them into bitcoin is well understood. Indeed Blockstream has already performed the first post quantum transaction. Their quantum webpage is helpful as regards the issue and upgrade path. 

An upgrade would look a little bit like this. A new signature scheme would be introduced. A user would then create a new quantum proof address and send their coins from the vulnerable address to the new one. Rather like transferring money from the NAB to CBA because you might believe one was safer than the other. That pretty much deals with all the coins, save for the 1.1 million Satoshi coins that have never moved. They remain vulnerable.

Satoshi Coins

Let us then imagine that Q day is here. The majority of users have migrated their coins to quantum proof addresses years ago but we all still know the Satoshi coins are vulnerable. They represent 5% of the total supply and dumped on the market at once would cause huge price ructions. 

The only viable candidates for achieving this currently are Google, IBM and a few others. Consider that to ‘move’ the Satoshi coins is the equivalent of taking someone's password and stealing their assets. It would be unlawful in most of the world. Only a massively capitalised company or nation state can afford to design and then operate one of these machines, are they really then going to take Satoshi’s coins and dump them on the market? I would have to say almost certainly not. The most likely winner here currently is Google. Their paper covers responsible use of this technology, so if they ever manage to solve the engineering challenge I very much doubt their first action would be to steal assets and publicly dump them on the market. 

The more likely outcome is that they are just left or pushed to a strategic reserve at the request of the USG to ensure that some other nation state doesn’t get their hands on them. At that point though, with a quantum computer working at that scale, the world would be a very different place in any event. 

Time lines

Educated views differ on how long it will take to get a viable machine. Amongst those who actually know what they are talking about: 

• Adam Back (Hashcash inventor, cited in Bitcoin whitepaper) — 20-40 years

• Jensen Huang (NVIDIA CEO) — 15-30 years for useful quantum computers

• Scott Aaronson (UT Austin, leading quantum complexity theorist) — refuses to give a timeline; notes breaking RSA would require "someone investing $100 billion"

• Craig Gidney (Google Quantum AI) — 10% chance by 2030; also notes he does NOT see another 10x improvement in qubit estimates under current assumptions — the optimization curve may be flattening

The reason the timelines to workable machines are so long is not just because of the engineering challenge. There is actually no consensus on what we are even dealing with. The founding father of quantum computing insists that the computing power must be drawn from many universes. Most physicists disagree, even though their explanations are more complex and rely on magic. 

So when people challenge bitcoin on the grounds of quantum, I am inclined to wonder if they have even attempted to understand what they are suggesting. Which is, that we will hold in stasis multiple universes for minutes at a time while our desired computation works, all of that without any interference from our own universe. Those minutes are tens of thousands of times longer than we have currently managed with thousands of times more complexity thrown in.

It’s an awful lot to ask and I am sure it will happen some day but I remain of the view that it will not be soon. 

Preparation

Even so, bitcoin is an adversarial system. Imagine the worst and prepare for it. That is what is happening. The first technical proposal for transition, BIP360, is here. Further quantum analysis is here. 

Signature testing has commenced and quantum proof transactions have already happened. 

Bitcoin will migrate at some point to quantum proof signatures. The Satoshi coins will hang over us in the same way the Mt Gox coins hung over us for a decade but realistically the operators of a quantum computer are highly unlikely to be bad actors. The capital requirement is simply too great. 

Cryptocurrency is not going to die because of quantum, but we will need upgraded signature schemes. 

Final word then to Satoshi Nakamoto who was asked specifically about this in 2010. It’s not a new story, or a new threat and his answer in 2010 is broadly what is now proposed.

Further information

Our March 2026 report to investors can be found here.

Check for yourself

One of the benefits of travel is seeing with your own eyes. Travel to China, and it's obvious their payments and transport systems are about 10 years ahead of our own. Not that we would read about that locally. China is bad, you see. 

Travel to Britain, and it's obvious (at least to me) that things are not going that well. Not because anything is as terrible as it is portrayed in the press. It's the same. The trains from London to the North of England are the same ones I used to travel on 20 years ago. Literally the same locomotives with the same names. The tube in London is the same (except the shiny new Elizabeth Line). They work fine, but they are old and there has been zero progress.

It’s not a particular surprise that most people don’t see decline either because decline is relative and our politicians can hide behind it. The status quo is failure. Everything should get better, always. Always more energy, always more production, always more leisure time. They are the measures.

It’s also telling that GDP in Britain has risen on average by 2.7% annually over the last decade but they have fallen massively behind. Why? Because GDP itself is a fraud, it's a pretend number that bears no relation to population. Only per capita counts and even then the number is made up (please see the Village Watchman from 2023). Britain has fallen massively behind over the last decade; GDP per capita is still at 2019 levels. 

So it was last week, with the “Deaths from inaction have no face”. We ought to compare against what could have been. We should already be in space, we should already have harnessed the limitless energy of the universe. We should also be using energy as money, since it is the only true measure of progress and the only thing that has equal measure across the universe.

The United Kingdom is many kilojoules poorer than it used to be. On its current trajectory Australia will be too. Getting out of the energy hole in Australia will be a lot easier here than for the UK and we will get out of it, but not yet. It will take the relative growth in wealth of another country to become obvious before we take meaningful action. 

There is an argument that in the Age of AI only energy will matter because everything else will be instantly produceable. It's become like that in software, we are very close now to just imagining software and the AI delivering it. The physical world will follow on a longer timeline; machines will produce anything you want and simply work out how to do it. 

Only energy will matter. Is it a coincidence that Microsoft has effectively sequestered Three Mile Island? Google has its own nuclear deal and Elon Musk has reportedly signed up Rolls Royce to acquire their modular nuclear reactors? 

Government statistics, GDP, inflation, all stories. You can see it in how many Brits believe their country is richer than Australia or the US. They believe the story. 

It is simple. How much energy do you have? Either as a country or as an investor.

Broken Calculator

The broken calculator problem is a maths puzzle where you must reach a target number using a calculator with specific broken keys (numbers or operations). It tests logical thinking and numerical flexibility by requiring participants to find alternative methods, like substituting subtraction in addition to circumvent broken buttons. It’s even in the NSW maths curriculum. 

The broken calculator can get more and more complicated, fewer keys or the removal of specific scientific functions. 

A researcher in Poland, Andrzej Odrzywolek, revealed this week that one single function and the number 1 can generate any standard real function. It is called EML, exponential minus log. His broken calculator would need only two buttons. 

With that one function on a scientific calculator and the number 1, you can generate anything else the calculator could have computed. 

He also helpfully charted the path from EML to other functions in this rather pretty diagram which lays out the number of steps from one function to another. 

Lots of the twitterati were chiming in and claiming that this is all ‘obvious’, but I suspect the best discoveries are obvious only in retrospect. His full paper is here. It’s not peer reviewed and I can’t find anything meaningful in the news about it, so it might be nonsense. These days however you can check if something is nonsense. So, I checked. Those of you looking for projects in Claude Code might do the same.

1. Give it the paper (and the supplementary paper)

2. Then ask it to write code that will produce Pi in terms of EML and 1. 

I would say it was non-trivial to do because Claude Opus took about 10 minutes to work it out and check it, with me prompting it to explain it in the way I wanted, but it seemed convinced.  

π = E( E( E(1, E(E(1, E( E(1, E(E(1, E(E(1,

 E(E(1, E(1, E(E(1,1),1))), 1)), E(1,1)) ), 1)), E( E( E(1, E(E(1, E(1, E(E(1,-1),1))), 1)), E( E(1, E(E(1, E(1, 

E(E(1,-1),1))), 1)), 1 ) ), 1 ) ) ), 1)), E( E(1, E(E(1, E(1, E(E(1,1),1))), 1)), E(1, E(E(1, 1), 1)) ) ), 1 )

Not exactly helpful for a human but it works. For a computer, to only have to work with a single function and 1 might be very helpful. Claude Code was very excited about this ‘discovery’. The paper is off for academic review and he’s either getting a Nobel prize or is being banished to undergraduate lectures forever. 

One of the things about the new era of AI that I like the most is that you can engage with things that would otherwise be way over your head. In this case the maths is over my head and the code required to check it is over my head but I can still use one to check the other and get an explanation of what is going on at a level I do understand. 

Goldman Sachs

The JP Morgan Bitcoin ETF launched this week. A solid start with positive inflows every day and they are heading towards $100 million quickly. Likely the product will be a slow grind as their advisers trickle client money in. 

It was enough to push Goldman Sachs into action. They have filed a Bitcoin Income ETF. The product will hold bitcoin and sell bitcoin options to generate income. It should outperform bitcoin in bear markets and underperform bitcoin otherwise. I’m not keen since it looks like a product designed to generate income elsewhere for the bank. Specifically, Goldman will probably be writing the options themselves, selling them to the fund, earning fees on both sides of the trade. Complexity for complexity’s sake I would say, but there is clearly demand for these ‘clever’ products, so good luck to them. 

Anyway, here are the Goldman slides from 2020 (that leaked) in which they told clients Bitcoin wasn’t an asset class, couldn't generate income and wasn’t investable. 

Welcome aboard. 

Nobody uses it

Not entirely cause for celebration that Iran has chosen to seek payment in bitcoin. Still, it's worth asking the question. Why? 

One of the best things that ever happened to Bitcoin was the seizure by the Biden administration of Russian Central Bank USD in overseas bank accounts. It was wildly stupid because it proved to the rest of the world, and China in particular, that any USD or US Treasuries they hold are worth as much as America decides they are worth. One of those outcomes is zero. 

As a consequence China accelerated their unloading of US Treasuries and began moving into other assets, notably gold. 

Recall too, every movie from 1950 - 2000 had the baddies accepting USD in suitcases. Everyone wants the liquid thing that they can sell and move instantly and will be accepted everywhere. It was once US dollars and it isn’t anymore. 

Tony Montana counts the loot in Scarface

Some will say this is bad for bitcoin. If we reflect for a moment though; the internet in Iran has been down for months, the infrastructure is slowly being destroyed. They are surrounded by aircraft carriers. They are being bombed into submission. All their communications are being jammed or scrambled. Nothing works. 

Except bitcoin. 

Euro-Trash

It’s been a while since we heard directly from Christine. She was back this week talking up one of her old buddies Mark Carney. He has been nominated as one of the top 100 most influential people in the world by Time Magazine.

“A Rock Star central bank governor”? I wonder. A better way to judge success is what is left behind afterwards. Whatever the circumstances of his time at the Bank of England and the Bank of Canada both of those countries' economies are now in far worse states than when he took those roles. Carney complained that Brexit was the cause of many of the issues Britain faces, but he was hugely influential at the time. He did not make the case for ‘Remain’ strongly enough. He lost, and then Britain lost too. To paint his tenure at the bank as success is just plain wrong. 

It’s telling to me that she describes him as the “George Clooney of finance”. I agree. That is exactly what Carney is. Much of his success climbing the ladder of politics and bureaucracy is down to how attractive and charming he is.

In his book “Fooled by Randomness” Nassim Nicholas Taleb describes a policy of choosing the least attractive surgeon possible when selecting a doctor for an important operation. The reason is that person is likely far more skilled, they have got there on talent alone, not charm and good looks. What matters in very important situations is only skill and competence; one should select purely for that. 

Once you see it, you see it everywhere. A reasonable heuristic might be to be suspicious of those in public office or politics who are very attractive because there is very strong evidence to suggest that’s a large part of how they got to where they were. Gavin Newsom of California springs to mind.  

I believe Mark Carney to be wrong about almost everything. He’s a zealot who does not understand the wealth creation mechanism, he left Britain in a terrible state. He could have done better. He will do the same to Canada. But it doesn't matter because he is attractive and charming and people do like being around him and basking in that charm. Consequently, important people like Christine Lagarde are willing to prostitute their own reputations to cement his friendship. 

I found it particularly thrilling for both of them that the piece was sponsored by Rolex too. Brilliant stuff.  

AI Footnotes

As a matter of interest (because I know many of you are using it), I pass this weekly note through AI to check spelling and facts etc. As the AI gets better, it also gets worse. I pasted all its suggestions below, I took two of them, the hard errors. 

The rest though are mostly equivocations. It does not want to take a position, simply to soften everything, not offend. The comments are from GPT 5.4. GPT 4.5 had far more of a personality and was a much better writer. The latest models are like HR staff, spending hours not offending and ‘crafting the message’ to the point that nobody wants to hear it. 

I think I would have hired GPT 4.5 and I would fire GPT 5.4, it’s weak. 

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Zero Day

There is an excellent book on vulnerabilities in software. Known in the industry as zero-days. A zero day vulnerability allows you to operate software at the base layer undetected. They are extremely valuable and generally available only to governments and elite hacking organisations (who also sell them to governments). 

The story is true and documents how the US and Israeli governments strung together zero day vulnerabilities to attack Iran's nuclear processing facilities by compromising the Siemens software used in the nuclear centrifuges. That was in 2010, but zero-days still exist. 

It also documents the business of Chaouki Bekrar, a French national who sells access to anyone in the world's iPhone or Android phone for upwards of $1 million dollars. His business still exists, website here zerodium.com. His Twitter account is still live, one assumes because he is useful to governments as well to others, perhaps less well intentioned. Naturally, he can also be found on LinkedIn.   

This week though life got a bit more interesting for the purveyors and purchasers of zero days. Anthropic’s latest unreleased model known as “Mythos” is so good at coding that it has found hundreds of zero days in all sorts of commercial software, including Linux and iOS. 

Accordingly, Anthropic has announced “Project Glasswing”. They have released the model to Apple, Linux, NVIDIA and others so they can patch the vulnerabilities before the model is released more generally to the public. It found a 27 year old zero day in one of the best open source firewall programs. 

There will be people and governments around the world already exploiting these hacks, their backdoors into systems are probably disappearing as we speak. It is also true that this model is better at coding than any human because we don’t have anyone that has found hundreds of zero-days in a matter of weeks. Each one, when found, sells for millions of dollars.

It’s squeaky-bum time too for the smart-contract industry. Any coding error now will be quickly exposed and exploited. Once this model is released (if it is released), everything will be put to the test. Every piece of code, every platform. Everything. If you have a piece of software that has had every hacker in the world attacking it for 20 years you have a better chance than everyone else. Are we confident in bitcoin? Yes. Are we confident in some smart contract that was coded in the space of two days, not really.   

For those that understand zero-days, this is seriously alarming stuff. For those that don’t, read the book. 

Crypto Legislation

Australia passed its Digital Asset legislation this week in the form of the “Corporations Amendment (Digital Assets Framework) Bill 2026”.

I have no real comment to make on it other than it probably codifies sensible behaviours that are already happening. If you want to spin up a platform that sells digital tokens of some sort to the public, you will need a special licence to do it which you likely won't get. 

I find Australia to be a special case when it comes to licences. You need one for almost anything (fishing, boating, entering an RSL for a glass of beer). Australia loves a licence. A case in point in NSW. To be a painter you need a special licence. You cannot just paint someone's house and get paid. Indeed getting the licence is not trivial either.

If you do get your licence and want to paint something high up, then you need a special certificate of competency to “work safely at heights”. The guidance here is 2 metres or more, which would imply that some tall painters would not be able to reach up with their own arm without requiring special training. 

That is not my specific criticism though, everyone wants people to come home from work safely at the end of the day. It’s that once people attain these licences they can pretty much do whatever they want, common sense can go out of the window. 

“Got your painting licence and your working at heights mate….good to go then”

Nano-Banana: Man painting wall at 400 feet

He’s at 400 feet painting a wall and holding his certificate of working at heights. Big tick. This is compliant behaviour because he has his licence.  

The problem with regulation is not what it protects people from but what it exposes them to. In Australia, self driving cars are banned. One of the most dangerous places in this country is our roads. The regulation permits you to have a glass of wine with your lunch and drive home. So, people do. 

It’s also less fine than self-driving cars which are proven to be 99% safer than a human driving. Insurance premiums for self driving cars in California are much lower than for regular vehicles. Somewhere though, there is a regulator saying no to self-driving because it is safer for their career to take no risk at all, while exposing everyone else to massive risk. The incentives are skewed. 

So it is in the case of this crypto-regulation. A classic example of cowardice really, somebody somewhere has simply codified what already happens while making anything innovative very hard. They covered their own backside and delivered nothing of future value. There has been no attempt to roll out new technology that might benefit people, or even give it a chance to benefit people. Things that might have existed, will not now exist or be developed in Australia. The regulations will be deemed a huge success.

A better characterisation of this argument was provided by Milton Friedman 50 years ago. Yet still we have rooms full of people that are preventing the things that will make our lives better. Particularly in this country. 

Friedman is asked: “Without regulation on drugs, people could die from taking dangerous products. Don’t you find that serious?”

Yes, says Friedman. An unregulated drug can kill people. It’s visible. It’s in the newspapers. It’s a scandal. Everyone sees it.

But what nobody sees is the people who die because a drug that could have saved them was blocked for 10 years by the regulatory process. That death, nobody counts it. Nobody puts it on the front page. Nobody knows their name. Because they died from the absence of something that never existed.

That’s the fundamental asymmetry of regulation.

The regulator has two types of possible errors. Error 1: approving a dangerous drug. Result: public scandal, lawsuits, the regulator loses their job. Error 2: blocking a drug that would have saved lives. Result: nothing. Nobody knows. Nobody protests. The silent deaths have no spokesperson.

As a result, the rational regulator optimizes to avoid Error 1. Always. They add studies. Phases. Committees. Delays. Each additional layer of “safety” protects them, at the expense of the patients who are waiting.

Friedman estimated that the FDA had probably killed more people by delaying good drugs than it had saved by blocking bad ones. It’s impossible to prove precisely. But the logic is airtight.

A concrete example. The beta-blocker Propranolol was available in Europe years before being approved in the United States. During those years, Americans died of heart attacks that could have been prevented. How many? We’ll never know. Because we don’t count the deaths from inaction.

It’s the same principle everywhere. Not just in medicine.

In France, autonomous taxis are blocked by regulation. Every year of delay means road accidents that could have been avoided. But nobody counts those deaths. We only count the first accident with an autonomous taxi, which will make headlines in every newspaper.

AI in medicine is slowed by approval processes that take years. Diagnoses that could be made in seconds by an algorithm wait for validation while patients wait months for an appointment.

Nuclear power has been blocked for decades by fear. How many people died from the pollution of coal plants that ran instead? Nobody counts them.

The pattern is always the same. We see the risk of action. We never see the risk of inaction. And since the risk of inaction is invisible, the regulator always chooses inaction. Because inaction doesn’t produce scandals.

Friedman summed it up in one sentence: “The people saved by the FDA are visible. The people who died because of the FDA’s delays are invisible. And in a democracy, the visible always wins against the invisible.”

The next time someone tells you “we need more regulation to protect people,” ask just one question: how many people die while waiting for regulation to let them live?

The answer is always bigger than we imagine. But nobody calculates it. Because the deaths from inaction have no face.

Red

I was musing on this chart after a very marginally positive month in April for Bitcoin. 

87 green months, 73 red months since launch. 55/45 ish, which compared to stock markets which are closer to 65/35. You would expect that I suppose from newer assets. Apropos of nothing really, I just looked at the chart and didn’t believe it. 

Satoshi Nakamoto

The New York Times published a new “exposé” on the identity of Bitcoin’s creator. It's long and interesting because it contains lots of details about the history of Bitcoin’s creation and release. 

I am suspicious. The article is good if you don’t know much about the search for Satoshi, but nothing in it was new to me. I have seen and read it all before. It isn’t paywalled either. Why? Everything is paywalled at the NYT unless there is an agenda and what could that agenda possibly be? The article even has flashy graphics on a page dedicated to it. 

Adam Back is CEO of the Bitcoin Standard Treasury Company (BSTR). It plans to go public on the Nasdaq through a merger with Cantor Equity Partners (CEPO). The deal has been hanging around for a while but they plan to go public this month. 

Is it possible to imagine a meeting with the investment bank sponsoring the deal that went something like this:

“Guys, we can’t just be another treasury company that holds bitcoin, we have to have something different. What could that different thing be? What about we just get an article out there in the New York Times rehashing old rumours about the CEO being Satoshi. People will love it, who doesn’t want to invest with Satoshi Nakamoto?” 

And, it has worked. It’s all over the news and I am convinced the listing will go ahead as planned.” 

This is an excellent example of Epsilon Theory’s “Why am I reading this now” heuristic.

Incidentally, if Adam Back were Satoshi Nakamoto, would he be spending his time listing a Bitcoin Treasury company on the NASDAQ when he already owns bitcoin worth $100 billion? I don’t think so.

Euro-Trash

You would think a surging Euro would be good news, a sign of success perhaps. I’m afraid not. The return of $1.20/Euro is causing alarm across the former Roman Empire. Chief of the Gauls, Christine Lagarde, said that the soaring exchange rate would be “an element that guided policy”. 

In fact what she means is that the Euro must be weakened, in the same way that the pound must be weakened and for the Americans, a weaker dollar would also be wonderful. Indeed, the whole merry-go-round of currency weakening has been going on forever but is likely to get more intense. It shows up in some places too, like Switzerland, where they are rather proud of their currency and so tend not to print more and more of it. 

Exhibit 1: Australian dollars have roughly halved in value versus the Swiss Franc over 12 years.

The Australia economy itself has outperformed Switzerland over the same period. The huge devaluation is simply down to the amount of Australian dollars in circulation which has increased dramatically. I don’t think anyone in Australia really knows about the growth in AUD supply, or cares. 

Faring slightly better, the Euro, losing about 40% over the same period.  That loss rate is just not high enough though. The ECB needs to print a lot more Euros to keep up with the likes of Australia with its debt funded property boom. They need to lift their game and I’m sure they will. 

As a result, Swiss interest rates remain at zero to try and dissuade too much speculative capital turning up in their accounts. In all likelihood they will turn negative later this year, and the reason is simple. Other countries print near unlimited amounts of currency and dump it on their citizens, who then seek to dump it on the Swiss. In the end there is only so much Australian Wagyu the denizens of Klosters can consume and when they are full, Swiss interest rates will go negative. 

There ought to be national outcry about this level of state sponsored theft but nobody seems to mind. In the same way that 2% inflation is generally accepted as good, for reasons nobody understands. A policy of competitive devaluation is also accepted as good. Yet every country that was super successful had a strong currency at its height. The Pound (100 years ago), the Yen 80s, the Deutschmark 90s, the dollar. But fiat currencies always die. 

It’s a brilliant scam really. All the while the currency weakens, your house price rises, your investments rise. 

The more the currency falls, the richer you get. Right?

Further Information

Our March 2025 report to investors can be found here.

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4Chan

We have talked a bit about the fines levied on American companies by the European Union. Last year, it was their single largest revenue source. How long will America tolerate this?

I think we found out this week from a different source. The UK censorship bureau “Ofcom” decided to fine website 4Chan (an anonymous, largely unmoderated forum) some £450,000 for not complying with UK regulations. 4Chan responded that they only operate in the United States, but they did so rather more colourfully than one might expect. 

Ofcom,

Thanks. As has been explained to your agency, ad nauseam, the United Kingdom lost the American Revolutionary War. We are not in the mood to discuss the matter further, and have not been in the mood for 250 years.

I note for the record that, last time your agency sent my client a censorship fine, we responded with a hamster joke. Since you have now sent my client a giant fine, a fine so large that Mr. Whiskers’ enclosure is not big enough to contain it, we will need to send the fine to Mr. Whiskers’ giant hamster cousin, Nigel J. Whiskerford. Unfortunately, Nigel is out of the country this week, touring in Japan. Here’s a picture of Nigel in Tokyo, dressed up as Godzilla and holding an equally giant peanut.

Isn’t he just the cutest?

My client reserves all rights and waives none. Reserved rights include the right to sue you again and/or to respond to future correspondence with an even larger rodent, such as a marmot.

Or, maybe, you could just stop sending Americans stupid letters and acknowledge the sovereignty of the United States.

Byrne & Storm

It’s aggressive and childish but perhaps meaningful. As time passes, levying fines on overseas companies probably won’t work. Not so much that they are unenforceable but that the American tech companies are larger than most economies. They have real leverage and if push comes to shove and they turn off their systems, it would be disastrous. Indeed the economic damage that they can cause is far larger than most nation states could inflict. 

I do bore on about it but the most powerful entities in the world today are not nations, and this little hamster is a tiny glimpse as to why.

A lot of things are going to exist outside of the purview of the old world. Money and energy spring to mind. Examples of it just keep popping up, why?

Rolling along

A good chart from K33 Research that shows how much bitcoin aged six months or more changed hands in the last year. I’m certain this is the $100k effect we feared. The question is will it happen again next time? By which I mean, $1m per coin. 

It upsets everyone to talk about or think about the ridiculousness of it, but I suspect it will be a similar hurdle.

Should it come to pass, there is another offsetting impact that takes place at the level. The sub unit of a bitcoin, the satoshi becomes worth 1 cent. (1 Bitcoin = 100,000,000). So at that price level, an entire redomination effect will occur, your Bloomberg screen will not say 1BTC = $1m. 

1.15 cents per satoshi in this example. It will make a significant difference to volatility (lower) and liquidity (higher).  

The single biggest thing to happen to bitcoin since its launch will be the Satoshi recharacterisation. Bitcoiners already talk in sats not bitcoin and have done for years.  No protocol change is required for this to happen, simply a shift in market convention. All it needs is the USD to get more plentiful. 

$39 trillion last week…..and barely a whisper. 

Quantum Resistance

The first Testnet of the Quantum-Resistant signatures is live. It is exactly that, a test, but there is significant participation from miners and BIP360 is getting traction which is good. I doubt it is the final solution to this challenge but certainly the logical pathway is clear. 

Bitcoin upgrades are doable but slow. The path to quantum signatures is not without pain and will require people to move their assets, but there is a plan for a threat that may eventuate in the next decade (and it may not). 

Adversarial systems plan for the absolute worst, they have to. I am certain that most businesses in the world do not have a quantum plan and haven’t even thought about it. The ‘yeah but quantum’ brigade is growing in number as far as bitcoin is concerned. 

Bitcoin’s plan is on github. The question is not really for bitcoin but for everyone else. Where is your plan? 

Hostile Regimes

You can learn a lot from a hostile regime. How do people or governments react in certain circumstances? We have no real idea what would happen in Australia if food ran out, or if fuel ran out. There are of course parts of the world where that does happen, and people do know. 

So what happens when your government runs out of money and wants you to stop leaving the country with it? In the West we sort of know. There are a myriad of exit taxes that make leaving expensive, everything becomes an instant capital gain and sometimes there is a legacy extraterritorial reach of taxation for a number of years after you leave. 

When it comes to gold we also know. The Americans have banned gold holdings in the past, the Russians are now banning gold export of more than 100g. Considering the jewellery on some of their overseas tourists that will be quite a challenge to enforce. 

Gold has a history of being seized, in many different types of circumstances. It just cannot withstand hostile regimes. 

Euro-Trash

Specifically though, it wasn’t the EU. It was the EU President Ursula von der Leyen. Celebrating the trade deal with Australia she decided to ruin it by making veiled threats about the security of her new trade partner. 

I would say there is a time and a place. In my case, I don’t go out for dinner with someone, have an enjoyable evening, and then casually remind them that they might get run over on the way home.

Ursula emphasised her point, telling Australians that they “cannot rely on a single supplier for critical minerals”. That’s the point of the deal Ursula, we are the single supplier. You don’t have anything but windmills. Australia has basically everything, and then some more too. It’s just that most of the time we can’t be bothered to look for it. What’s more, Australia produces enough food to feed 80 million people. Which perhaps also explains why 32% of us are obese. 

This is Anna Creek Station, one of the largest cattle farms in the country. 2.4 million hectares, compared to Europe’s largest, 57,000 hectares. In Anna Creek they call 57,000 hectares the back garden. 

It is 1,000 km from Adelaide, 2,000 km from Sydney and 2,300 km south of Darwin. Anna Creek, if you can find it, has more cattle than Greece and Bulgaria combined. From the perspective of cattle farming the deal sounded good but actually equates to about 0.1% of the cattle in Australia being available for European export. It will make little difference to Australian farmers who are still unable to seriously export to Europe. Selfishly, I'm glad because Australian beef is a lot better. I find the European version still tastes of Chernobyl. You know, because distance did save Australia that time.  

There was a defence deal too. Australia and the EU will now conduct naval collaboration but the EU has no ships at all. It's a trade agreement, a piece of paper and Australia has only 10 combat vessels. Everything else is a surf board. So, I shouldn’t think that will amount to much but it was a nice thing to be able to say to our visiting guest. 

On balance, it was a good deal for Europe and an ok deal for Australia. I hope Ursula has a safe trip home because planes crash all the time in an uncertain world. Thank you for visiting.

Further Information

Our February 2025 report to investors can be found here.

📚️ PDF⏳️ 6 min 📖 8

Bitcoin

A whole week of positive ETF inflows last week. The S&P 500 fell 2.2%, and gold dropped 3% and bitcoin gained over 10% as the crypto market added over US$200B. Why? As with all markets, we don’t really know. But the following ideas are true and may well be contributing. 

• Wars are expensive. Generationally expensive, amplifying debt and adding to inflation. Bond yields everywhere rose sharply last week as markets priced in more of both. 

• You can’t blow up Bitcoin. It sounds flippant but it is not intended to be. Distributed systems are far more resilient to war, than other assets. Lots of asset classes have single points of failure. Airlines with their susceptibility to oil prices are a good example, airports are an even better one. Entire continents could fall into the sea and bitcoin would keep going. 

• The general vulnerability of the economy to any sort of disruption is being laid bare in Iran and it begs the question, how resilient is your system?

Now the boring bit. The bit everyone hates when I talk about the Sovereign Individual (again). In that book they accurately predicted that wars would become incredibly expensive to prosecute as time went on, because the cost to smaller nations of doing enormous damage to larger ones would fall significantly. The concept was described as the “falling returns to violence”. Essentially, it costs very little now to cause great economic damage as the $10,000 drones hitting Dubai airport prove. Even worse, they are being shot down by $400,000 anti-drone missiles. It is a huge cost asymmetry. 

It’s such a big issue in fact that the US Navy has its lead aircraft carriers (very sensibly) a long way back from the battle zone because they are so easy to attack with cheap weapons. The Houthis aren’t exactly renowned for their technological capability and yet can somehow threaten a vessel that carries more firepower than every nation on earth save for its host. 

Save yourself the trouble of reading the book. This summary is good. The book improves with age, written in 1997 its predictions are becoming increasingly spooky.

“The biggest opportunities come from new niches created by exponential tech shifts and others’ failure to adapt.”

1000 years of history dies

So says the Electoral Reform Society. The United Kingdom’s Parliamentary system is a little odd in that until 1992 there were 600 members of the House of Lords who held hereditary peerages. Simply unelected barons who would lob up at the gates of parliament and be let in by dint of birthright. 

84 hereditary peers remained until this week when they were voted out of existence. It must be said that most people are not sad about this at all. It's difficult to justify. Even so, if something survives a very long time in a hostile environment, it's probably quite a good idea. 

The oldest of this week's abolished peerages belongs to the Earl of Arundel. The family has held a continuous position in the House of Lords since 1184. They still live here, in Arundel Castle. 

They also held the position of Earl Marshal meaning they oversaw the State Opening of Parliament as well as Royal Weddings and Funerals. No longer, the role will now be fulfilled by Brian, from Accrington. 

What arguments are there for why this could be a good system? Well perhaps the only one I can advance is this: their legacy is inherited by their children. So they work quite hard to protect it and do the right thing. If such a thing exists they are ‘dynastically committed’. Also, because of the hereditary nature of the peerage, the children can’t really avoid what's coming their way either. So everyone needs to behave with reasonably good intentions. That does not always happen, but it is a good counterpoint to the alternative which is an entirely elected upper house who behave like tomorrow does not exist. 

A case in point, Nancy Pelosi of the United States House of Representatives, a lifetime politician earning $200k, is somehow worth $400 million. I accept that she is an excellent stock picker but she has made Warren Buffett look like an amateur and she's not alone. There is disproportionate success in the US Senate too that defies probability. I’m not against their success, I just cannot explain it. 

The fact is that the hereditary peerage is designed to avoid corruption. The consequence of misbehavior cascades through multiple generations. As a result, they broadly did behave and did not interfere with the work of the government if they did not have to.  

It’s indefensible really but somehow it worked, and now it’s gone. It is possible that the system was cleverer than we thought it was and we will only find out once it is no longer there. It won't take 1000 years to find out either. 

Slowly then, the nation state decays. It dismantles its infrastructure and consumes itself through spending. 

Yields

The UK has been hit hard in terms of borrowing costs since the commencement of action in Iran. Rather surprising because they have been very reluctant to help out their closest ally. There is more to it and perhaps it’s because the natural response in the UK to any incident is to give away more money. 

Barely a rounding difference £53m, 80 pence per resident. But the point is the spending continues and never seems to stop. In the last financial year the UK’s budget deficit was a massive 5.2% of GDP. The UK’s thirteenth largest since 1948. Annual borrowing is now around £2,200 per head of the UK’s population (or more importantly, £4,500 per private sector worker).

The situation was slightly less bleak in America where at least strong economic growth gives them a fighting chance but even then the bond market is not happy. 

We have been promised a bond market reckoning forever. It will never come though. We know that from Japan. It can always be resolved by the magic money printer, and it always will be. 

Total interest cost in the UK now £120 billion annually. Twice what is spent on defence and the equivalent of the entire education budget, and rising. 

As we stand the Bank of England holds 8% of all outstanding gilts from its QE program. Quite soon, that number will begin to rise again. 

Private credit

Is there another kind? Turns out that any lending not from a commercial bank is considered ‘private credit’. It's a very dark descriptor that I imagine was invented by the banks themselves to draw a shadow over markets in which they couldn’t, or wouldn’t, participate. Now private credit is big, and the question is, is it too big to fail?

March 16 (Reuters) - Private-credit market jitters have spilled onto Wall Street, with some major U.S. banks tightening lending while the funds have capped withdrawals as mounting concerns prompt firms to curb risk and brace for further strain.

Sentiment had been dented by concerns over valuations and transparency, as well as cases such as the bankruptcy of auto-parts supplier First Brands and car dealership Tricolor, where some private-credit lenders held exposure.

There seems to be tremendous drama in private credit because there are no strict requirements for funds to mark their investments to market. So if they lend $100 to something wobbly, it’s worth $100 until the day it’s worth zero.

We discussed this the other week in the context of commercial property. Most assets don’t actually need to find a price until they really, really need to find one. When that happens the price isn’t the price you thought it was. As a consequence, some private credit funds have restricted withdrawals because their assets can’t be sold, ‘temporarily’, of course.

For us, we suffer every downturn because bitcoin and ethereum and the rest have such visible pricing. Everyone knows exactly the price at all times: 

“I see that bitcoin is down blah per cent”. 

“Yes, you are exactly correct, to within cents. May I inquire as to the specific performance of your private credit investments?”

Bitcoin has more trading hours under its belt now than the NASDAQ itself. It's exhausting. Sometimes I just want a day off. 365 days 24 hours for all of those days always knowing the price. 

We always, always know the price. 

So much of the investment world is not like that because the price is probably some fraction of what the books say, but the rules are ok with that. For now. 

Euro-Trash

As markets go digital? Surely they have been digital for 30 years or more. Payments in Europe using the SEPA system are already instant, you pay anyone in any Euro country via SEPA (which is free) and they receive their money instantly. What then is the Digital Euro for? Quite honestly I do not understand it but the ECB is pushing their Digital Euro Project really hard. 

The arguments here were made in a podcast by Piero Cipollene, an ECB Board Member.  

We’re back on the whole ‘Blockchain’ thing again. Blockchain good, bitcoin bad etc. Fundamentally, at its core it completely misunderstands the technology.  Blockchains are intentionally designed to be slow. The reason is so the person in Peru and the one in Mongolia can download data within the same fixed window and have a reference point that they can both agree on. Bitcoin arbitrarily chose 10 minute windows for that purpose. It’s slow because it controls for slower bandwidth and geography because everyone has to host the software. 

You would never run a ‘blockchain’ if you were the only person that could write to it, which is exactly what the ECB proposes. It just does not make any sense. They should use an Oracle database like every other big player in the world does. 

The whole thing is a mad salad of nonsense verbiage. 

The full roadmap can be found here. I wish you the very best of luck if you choose to read it. All I took from it was this: 

“With Appia, the Eurosystem aims to deliver a blueprint for a future long-term solution by 2028, in cooperation with both public sector and market stakeholders”

What?

Two years to come up with just a blueprint  for a future long-term solution.

Further Information

Our February 2025 report to investors can be found here.

📚️ PDF⏳️ 6 min 📖 8

Making Tax Miserable

To great fanfare the UK Government is about to embark on its ‘Making Tax Digital’ program. The idea is to modernise tax collection and reporting by mandating that taxpayers keep digital records and submit returns on specifically approved software. 

Large companies already do so but MTD makes this mandatory for every landlord, sole trader or self employed person in the UK. There was some helpful advice for them too on the HMRC website about how they could ‘connect their APIs’.

This guidance explains how you can integrate your software with our APIs. It provides examples of how they fit into various end-to-end user journeys to enable individuals and their agents, where authorised, to meet their obligations after they have signed up to Making Tax Digital (MTD).

Incidentally, ‘signing up’ to MTD is mandatory. So “are enlisted” would have been better. 

It's rather more than finding software though and “connecting your APIs”. Taxpayers now need to submit five tax returns a year instead of one. Quarterly updates on your income and expenses, then a final tax return confirming you really meant what you have already told them. This is already required for VAT registrants which are an entirely different set of obligations. Again, large businesses do it already, but for everyone else (so 90% of businesses in the country) this is a new and as yet undiscovered nightmare. 

Anyway, the net effect has been rather less than positive; here is Spectator columnist Lionel Shriver. 

Most people will not be able to achieve this administration burden without professional help but there are nowhere near enough accountants to do this work in the UK. What’s more, if you do find help, at a minimum it will be £1,500 just for them to say hello and in the simplest cases you might get your five returns done by an accountant for £2,500. 

The lower threshold of catchment here though is £50,000, which is clipped already by the government at 45%. They are suggesting now that everyone must contribute another 10% of their net income just to file a load of tax returns that HMRC doesn’t need and never previously required. What’s more it is not even intended to raise more money. 

Now people are leaving, not really the country, but certainly the workforce. A slew of early retirements are incoming from contractors who simply cannot be bothered. 

UK government expenditure is now 45% of GDP and rising, but really the number is false. It does not include the time spent by the private sector attending to government mandated admin which surely now exceeds 10% of all the time at work. In this case all the extra work will add nothing and probably less than nothing. One can only imagine the feast of money that consultants have had designing this nightmare and the software that goes with it. 

Oil

Everyone was excited. “Oil is $120”. 

The peak nominal price for oil was in 2008 when the price reached $147. Nothing much had happened other than a Goldman Sachs analyst, Arjun Murti, publishing his ‘super-spiker’ paper suggesting oil would reach $200 by 2010. He was, naturally, spectacularly mega-wrong. But nobody seemed to mind and he retired as a partner in 2014, sailing into the sunset on a yacht full of $40 oil. 

Herewith then, oil priced in my beloved metric, dozens of eggs. Why eggs? Because the cost of production stays the same, we don’t get better (not that much anyway) at making eggs so the cost base stays consistent. It bounced around in covid and bird flu but ultimately hens lay eggs at the speed they lay eggs, you can't give them GPT and have it happen any quicker. 

A barrel of oil today is about 25 dozen eggs, pretty much exactly on the long term average. The trend though, is downward. Since the super-spike of 2008 the oil price has consistently fallen as American production has ramped up. The USA now completely dominates world oil production, a fact that surprises most people. That fall in price was against a very stiff cost trend against fossil fuels, which itself is now reversing.

The only OPEC country in the top 5 is Saudi Arabia, making OPEC a footnote in oil history.

Then add Venezuela, much of their oil didn’t hit global markets. If America gets organised, production there could ramp up significantly. Iran itself represents only ~5% of global oil production so the disruption there is unlikely to have much effect but if things fell in a nice way (unlikely), then there might be slightly friendly Iranian oil hitting the global market in 2026. Small chance, but not no chance. 

More broadly though, we are getting better at extracting oil all the time. The West is also waking up to energy demands and even countries like the UK will restart North Sea drilling and fracking, perhaps not in the next three years but certainly in the next ten. 

Incidentally, if you were to say to people that you measure the performance of your investments in dozens of eggs you would be considered mad. People openly laugh at the suggestion as stupid. Yet it is a provably superior measure than nominal measurement. 

That is the fiat currency story, a tremendous intellectual success. People think oil prices are near recorded highs, but it’s not even close. The deeply embedded measurement system that is so successful, so omnipresent, nobody cares to think about it. 

The measurement basis explained

Not stable

During downturns you can broadly predict who will be influential when the mood finally shifts. Who is building when the chips are down? Which parts of the industry are looking several years ahead, longer.

We are now at the all time high of stablecoin issuance. $314 billion. Perhaps more interestingly the once dominant Tether ($183bn) hasn’t moved much in months and all the growth is coming from the US based businesses most notably Circle, with its USDC. 

And so what? Well the so what is simply that once money enters the crypto system it rarely leaves. The growth is real and people with USDC and USDt will trade bitcoin and other tokens but rarely do they go back to fiat. So it is meaningful for the future.

More than that the current growth is underpinned by a new regulatory environment in the US. Banks can custody these assets, you can borrow against them. The full suite of products that we enjoy in the fiat system is quietly being built out around a new set infrastructure. But again, so what? Well every stable coin is 100% backed (or more) by treasuries or equivalents. Every fiat coin is on average 7% backed by liquidity, the rest balances stand on the head of a needle. That needle being house prices, commercial property and commercial loans. Commercial bank balance sheets basically. 

The default view is that the creditworthiness of a USD far exceeds that of USDC, where on closer examination I would argue the reverse is true. If the banking sky falls in, or house prices fall 50% I’d rather be in Tether than a commercial bank. 

BlackRock even has a fund for USDC holders where they can invest with their stablecoin and earn income. 

It’s not as though there is anything special about this fund either, it yields about 2.5%. It's simply that the acceptance of this technology is here. It is growing very quickly and very quietly. 

So much so that the World Economic Forum, who for so long hated this sector, published an article explaining what it is all about. Incidentally, their change of direction was rather obvious back in January when the gang were in Davos doing God’s work. 

Euro-Trash

Nuclear? Surely not. Just years after Germany turned off the engine of its industrial base, Ursula is back telling us all how wonderful nuclear power is. It’s available around the clock! 

A short tour of recent history will show her voting for the complete phase out of nuclear energy in the Bundestag archives. Yet now she is touring Europe spruiking the quality of Europe’s nuclear engineers, many of whom have lost their jobs as a result of her earlier vote. 

In her speech this week: “we have far more nuclear engineers than the US and China”. China has 60 nuclear reactors and is building another 40. Maybe Europe has more engineers, but what are they actually building? The reality is they were fired over the last decade and have probably retired. 

You would never get away with this in the private sector. A monumental, ideologically driven, wealth destroying, catastrophic decision. The nuclear chart maps almost directly to the success of the German economy. Absolutely industrially dominant at the turn of the century and for the decade that followed, then steep decline. 

Further Information

Our February 2025 report to investors can be found here.

📚️ PDF⏳️ 7 min 📖 6

ETF Flows 

A little heartbeat on the ETF flows here from Coinglass. Suffice to say until this week, recent outflows have been negative, but not overwhelming so. The net decline in ETF bitcoin holdings is tiny overall from its peak and does little to explain the price movement. The main factor is older holders selling. We did preface this at $100k that it was likely to be a very significant hurdle because of the ‘OG’ selling that it might (and did) precipitate. 

Surely though, that is bad? 

No. What we want is maximum distributed exposure. As many people as possible with some exposure to bitcoin. Directly, through ETFs or funds like ours or through some other means. Bitcoin’s success is directly attributable to early adopters distributing their coins. 

Like the now famous “Laszlo Pizza” of 2010, where he paid 10,000 bitcoin for two pizzas. It looks ridiculous in retrospect but he was actually making it real by distributing his stack to others in return for something.

Let the bitcoin flow, I say. Here they are flowing as I write, 27 blocks deep of transactions in the queue. 

The user of last resort

I read a thesis last week that AI’s hunger for power would ‘kill bitcoin mining’. Specifically, the idea is that it is far more profitable to sell power to cashed-up AI providers than it is to do so to bitcoin miners. A case in point would be Bitcoin miner Iris, whose premium power contracts have indeed been pivoted to AI data centres with great success. 

The idea fundamentally misunderstands mining though. Since the beginning bitcoin mining could only ever occur in places where nobody else wanted to be. 

1. So we began with home miners. You used a simple desktop PC in 2009 to mine bitcoin. Nobody wanted the excess capacity on your computer and that was that. At that time there was no competition for that space, people mined bitcoin. 

2. Later, ASIC miners specific to bitcoin were invented. They needed power and so the big miners went to places like Kazakhstan and Mongolia where power was plentiful and cheap. At that time there was no competition for that space or that power, people mined bitcoin. 

3. Bitcoin expanded to geographically stranded energy, parking miners on gas flares. No competition for that stranded energy. 

4. The space evolved. Miners started to sign up very cheap power contracts wherever they could. There is excess capacity all over the world for large periods of the day because the renewable build out often produces more than is required. Again, there is no competition for that particular space and….people mine bitcoin. 

Now we are here. Demand for power 24/7 is soaring because of AI and so power grids particularly across the US and China are being built out heavily to accommodate it. Nuclear reactors are coming back from mothballing. It will take 3-5 years but power availability (at least globally) is going to soar. The thing is you have to build power to peak capacity so your grid needs to produce for the very hottest (air con) or coldest (heating) day; which will also be days when everyone is indoors asking ChatGPT why they are fat and depressed. 

There will be so much excess energy for large parts of the day that the demand for an intermittent user; specifically the one who can just turn off whatever they are doing at a moment's notice is going to soar. This has been put to the test in Texas, a hub for bitcoin miners, who sign up to intermittent agreements and turn off their equipment on very hot days when electricity demand soars. It’s still rare, their uptime remains in excess of 97.5% annually. The key feature is that turning it off doesn’t matter, there is no time dependency to bitcoin mining. Mining at 1am is the same as mining at 6pm on a very hot day. For the vast majority of other grid users there is no choice. Supermarket freezers must stay on, the kids are hungry, the oven must go on etc.

Bitcoin has never used power that other people wanted. It can only afford power that nobody wants. It was true on day one and it is true today. 

The thing is, the availability of power that nobody wants is about to go through the roof. You will not want to be running a massive AI data centre without also hosting a bitcoin miner to make sure that you always use 100% of your allocated power contract. 

Bitcoin mining has always been the user of last resort. 

Hard things

I’m impressed by this. It is extraordinarily difficult to get a Federal Reserve master account. Much in the same way as getting a banking licence in Australia is incredibly hard (keeping it is even harder). The same hurdles are true in the USA. Kraken went through five years of pain:

“The approval follows more than five years of sustained regulatory engagement, extensive examination, and operational scrutiny. As a Wyoming-chartered Special Purpose Depository Institution (SPDI), Kraken Financial is a state-regulated bank operating on a full-reserve basis, holding liquid assets equal to or exceeding 100% of client fiat deposits.”

A master account is essentially a bank account with the person that prints the money. Your money in the CBA is just a line on a spreadsheet. If CBA collapses the money goes with it save for the guaranteed amount ($250,000 per account). That cannot happen in a master account, it is the money. That is why they are hard to get and the Fed and the RBA are extremely protective of who joins the club.

The least popular member of this club is going to be Kraken because their business model threatens everything in banking. 

“Over time, this architecture could enable atomic settlement between fiat and crypto, institutional-grade cash management integrated with digital asset custody, and programmable financial products built within a fully regulated framework. This is what it looks like when crypto infrastructure matures into core financial infrastructure.” 

So we are talking stable coins paying yield to holders. We are talking about bitcoin backed loans at a fiat based institution.

Most impressive is the depth of the lobbying effort that went into stopping this from happening. You will recall Operation Choke Point II under the Biden Administration where crypto providers were de-banked at the behest of the incumbent providers. That is to say banned from having any bank account at all, never mind a Fed Master Account. 

It took five years to get this far and it might take five years more for interesting things to happen. The climb is unstoppable though. I note also that Kraken Bank is in excess of 100% reserved. Considering the levels held by their competitors it is just about the most robust bank in the world financially. 

Huge effort. Not trivial for the industry and congratulations to Kraken. 

Bricking it

Two things strike me about house prices in London. First, they have had a terrible time. Second, nobody that actually lives in London believes prices are down.

Progress has been ‘slow’ but they have risen every year. Nominally true. Real prices of course are down about 25% from their peak. Several things happened, a severe bout of post covid inflation and then a collapse in the really high end market because the new government chased away all the rich people in London. That high end collapse drags the average down but it also trickles down generally because less money is sloshing around.

No millionaire in their right mind now would shell out £15m or more for a house in London right now. 

The reason is one simply of taxation, not just generally but even on the house itself. If you buy a second home in London now for £2.5m, it costs £340k in stamp duty. If you did buy one for £15m, the stamp duty cost is £2.46m because you pay the additional 5% on the whole thing because it is a second home. 

I’m certain nobody is actually doing this, you’d have to be mad but that is the nature of the change in the rules. The basic stamp duty rates are here, and the additional property rates are here. There are now lots of beautiful houses in London that nobody wants, even more homeless people and even less tax raised for the government.

Yet, the prospect of this creeping into Australia is high. The problem is when so much wealth gets trapped in one source the government has no choice. It happened in the UK. There was nothing surer than London property, just like there is nothing surer than Australian property today. It’s a sitting duck though. We will find out how much of one on 12th May this year. 

Euro-Trash

It was Saturday morning in Europe when war broke out in the Middle East. By late afternoon that day the major airports across the region had closed causing massive disruption to the 500,000 people that pass through them every day. A lot of Europeans were ‘trapped’ in the UAE in particular. 

Enter Ursula von der Leyen. 

On Monday! It was all and everything that could be said about the European Union in one message. 

When Monday came not much happened but by Tuesday Ursula had been on the phone. 

To Bahrain:

To Qatar:

To Jordan:

The EU is a piece of paper. It literally has nothing. No army, no money, no tax raising power. Nothing makes it more obvious than the last seven days. There is nothing wrong with trade blocs, but there is something odd when they pretend to be something else.

Further Information

Our February 2025 report to investors can be found here.