The ups and downs around the world in ten stories
This has been a blistering week of news; it’s also been a blistering week in the sun for me at our Lux team offsite. Here’s a run-down of the 10 most important stories I saw this week, as I write without airplane wifi (can Delta get Starlink too?)
1. Hurricane Helen’s rapid expansion and devastation
The story of our first Riskgaming scenario, Hampton at the Cross-Roads, is about a hurricane named Helen that veers north along Florida’s east coast, rapidly expands due to warm ocean waters, and proceeds to furiously drown the Hampton Roads region of Virginia, home to America’s most important naval bases.
I watched with extreme concern then as Hurricane Helene (with an “e”) approached Florida’s west coast on Thursday, accelerated from a Category 1 to a Category 4 storm in a matter of hours, and made a hard landing near the town of Perry, where storm surges breached 20 feet and demolished whole towns in its wake. The Sheriff of Taylor County near Tallahassee went so far as to ask residents who stayed put to write their name and date-of-birth on their skin in permanent marker to make identifying their bodies easier. As I write, 4 million residents are without power.
I haven’t written about climate security since "Warming Hyperthreat” back in September, 2022. It’s not because it’s unimportant — I would argue that the security threat of climate disruption is massive and unrelenting — but it is also unchanging, and that makes covering the issue week after week exhausting. Helene was the fourth hurricane along the Gulf Coast this year — a relative rarity. It’s only going to get more intense.
2. I got the Fed wrong
The Fed got its soft landing and deserves to declare victory. As I write this on Friday, the Fed’s preferred inflation gauge hit the bank’s target at 2.1%, indicating that the mildly galloping inflation of the past two years appears to be behind us.
I was wrong on this one. I have a deep loathing for the hubris of policy wonks, and no policy wonk has more hubris than central bankers. Finding a Goldilocks policy, maintaining that in the chaotic American economy the past two years, and then easing into the calming waters of today’s environment seemed an incredibly tall order even for the brilliant minds at Eccles.
But the collapse of commercial real estate hasn’t happened (or at least hasn’t happened yet). Tech got reset, but it also got an AI boom. The XBI biotech index is up more than a third over the past 12 months, recovering alongside declining interest rates. Home sales slowed, but prices never really dipped. Travel and consumer goods are selling like crazy.
They did it. Powell should be proud.
3. China is now willing to save its economy
America’s economic challenges look like a toddler’s tantrum compared to the extraordinary crisis at the heart of the Chinese economy, where trillions of dollars of assets have been going through an historic reset. The government has attempted to hide the extent of the carnage through an unprecedented level of control over financial information in the country, ranging from blocking access to databases to this week’s arrest of a top economist for saying that the economy isn’t perfect.
Despite such futile efforts, China’s economy is badly hurting, and now the government is attempting to shore it up to avoid the hardest landing. This week, the government announced stimulus measures including reducing the reserve requirement for banks (permitting greater lending) as well as enhancing mortgages to improve housing prices.
Capital flight from China has been a critical tailwind for America’s stock run-up the past few years. While these measures don’t fix the underlying political fears driving that escape, the financial flows to the West could slow and dampen some of the record highs we’ve seen with the S&P 500.
4. That failed industrial juggernaut: Boeing
Boeing is struggling under the weight of a major strike, which is now entering its third week. As the Financial Times noted, the strike has offered an immediate reprieve to some of Boeing’s suppliers, who are behind on orders and are using the work stoppage to catch up. Nonetheless, fumbles by Boeing’s management in the negotiations and a very angry union membership (which has seen almost no improvement in wages in years) makes it challenging to settle the strike.
There have been so many great articles (and book’s like Peter Robinson’s Flying Blind: The 737 MAX Tragedy and the Fall of Boeing) that it feels wrong to keep beating up what was once a storied manufacturing powerhouse of American ingenuity. Yet, the example of Boeing needs to be taught in grade school all the way through the august halls of the nation’s management schools. The financial engineering and dereliction of engineering at Boeing is a sordid tale of value extraction that eventually and inevitably turned to value destruction. Boeing is heading for a hard landing — just like its airplanes.
5. That other failed industrial juggernaut: Intel
Intel is one of the most important tech companies in America; it’s also dying. Despite an extraordinary AI boom that has propelled stocks like Nvidia, AMD and Cadence to recent highs (if receding a bit), Intel has painfully lagged. Down more than half over the past five years, Intel is now on the block to be purchased, and rumors are swirling.
Companies like Qualcomm, Nvidia, and Arm alongside PE firms like Apollo are circling the company to make a deal. In some cases, the playbook is a classic turnaround: doubling down on recent layoffs while shoring up Intel’s product lineup to be more competitive particularly in growth sectors like AI, data centers, and connected devices. For other parties, they intend to do a hack job to dismantle the company into independent entities that can either operate independently or be sold.
I wrote “Intel’s Malaise” back in July 2022, but even I didn’t see such a poor outcome for the company. While Intel repeatedly blundered its navigation of the chip world the past two decades, today the market is just running roughshod over the business. Intel is no longer in command of its destiny, but is like a lifeboat on the ocean waves in the midst of Hurricane Helene. It’s time to find that lifeboat a home and hard land this company.
6. Is OpenAI the Yahoo of its generation?
The talk of the town (of Palo Alto, at least) was the rapid disappearance of senior leaders at OpenAI this week, which involved the departure of the company’s CTO Mira Murati, vice president of research Barret Zoph and chief research officer Bob McGrew among others. That was on top of earlier disappearances like president Greg Brockman, who is on sabbatical, and co-founder and chief scientist Ilya Sutskever, who departed and reportedly raised $1 billion for his new company Safe Superintelligence. OpenAI is also reportedly working on transforming itself into a for-profit company.
Is this mess going to hold back the AI leader? Will it become the Yahoo of AI, the first victor in the search engine wars only to be felled by Google a few years later? While all predictions are likely to be regretted, the simple answer in my mind is “no.” The density of talent is still incredibly strong, the brand identity is leaps and bounds over its competitors (Anthropic’s Claude has been more usable recently, but no one I talk to outside of tech has ever heard of it), and a for-profit model will power the company to quite a bit of growth. The winds are still in the company’s sails — and there’s no sign of land to beach this company anytime soon.
7. Hugging Face crosses 1 million models
The AI boom has been a godsend for open-source experimentation, and no company has been a greater beneficiary than Hugging Face (which is a Lux portfolio company). The company announced this week that it has crossed more than 1 million model listings on its platform, with exponential growth the last two years.
Why so many models? Much like GitHub allowed for the reuse and remixing of open-source code (and then private repositories), Hugging Face provides a sandbox for every machine-learning researcher to try new models, tinker with them, and upload their work for the world to use. That creates an accelerated feedback loop between model designers and users, improving existing models while also illuminating new paths for further work.
With the cost of training still increasing exponentially, the predicted future of AI is a handful of foundation model families remixed in thousands of different ways for specific use cases. That’s the future Hugging Face is building right in front of our eyes.
8. Facebook democratizes VR
Facebook Connect, Meta’s annual product launch and roadmap event, got blown away by the news slog this week. But no one should ignore the introduction of the Meta Quest 3S, which the company sells as “unreal experiences at an unreal price,” namely $299 or less than half the price of Sony’s PlayStation 5 Pro.
This announcement is notable since Facebook and Apple are heading in very different directions with their VR devices. Apple wants to build the future of spatial computing, and is targeting a high-end productivity user. The Apple Vision Pro debuted earlier this year at an eye-watering $3,499, but to lukewarm reviews. Facebook on the other hand seems to be going as low in the market as it can manage given the bill of materials.
VR remains the medium that’s always predicted to be just around the corner but never actually arrives. It’s an industry that has had more than one hard landing, but it feels that between Facebook, Apple, and several other competitors, the product lineup for consumers is starting to get much more serious and realistic.
9. Japan’s surprise election result
This month’s race for the presidency of the Liberal Democratic Party of Japan (and by extension, the role of prime minister) was unusually competitive, as I noted earlier in “The Productivity Precipice.” Candidates had a wide variety of response to Japan’s economy, ranging from encouraging more startups and disruptive innovation to doubling down on the country’s legacy of massive zaibatsu conglomerates.
In the end, the winner in a nail-biter was Shigeru Ishiba, a long-time politician who is expected to tack against the country’s policies of the past decade under previous prime minister Shinzo Abe and his successors. Tobias Harris had the best analysis ahead of time on how Ishiba sees his role, but one thing is clear: the startup candidates did not win and the aggressive focus on competitiveness that came with Abenomics is likely to recede. The Japanese yen strengthened, and Japan’s stock market rose. Japan’s economy has finally emerged from the doldrums of the Lost Decades, but keeping it flying and not landing softly will be a massive challenge for Ishiba in the months ahead.
10. China launches a rocket and sinks a submarine
Finally as we whirl about the Asia-Pacific, two blockbuster military stories out of China. The first is the country’s launch of an ICBM over the Pacific this week — the first test in 44 years. The country has been rapidly modernizing and expanding its nuclear forces, even as it investigates widespread corruption in the People’s Liberation Army Rocket Force. The missile was unarmed, but could carry a nuclear payload.
On the flip side, The Wall Street Journal reported that China catastrophically lost one of its newest nuclear-powered submarines after it sank in the Yangtze River. Satellite photos (provided by Lux’s exited portfolio company Planet Labs) show the sub sinking and then “large floating cranes” arriving later to pull the hull out of the water. Whatever went wrong, it’s an embarrassment for a country looking to demonstrate its great power status.
P.S. Eric Adams Indictment
Talk about the hardest landing for a NYC mayor, huh?
Josh Wolfe: Our new world order is one where algorithms can wield as much influence as armies
Science is the world’s greatest force for progress, but how are the people and institutions that compose this critical activity performing? More specifically, how well is American science competing as more and more countries focus on sci-tech supremacy as a key aspect of building power? The frontiers of technology are determinative of destiny, and so who is pushing those boundaries furthest is crucial to understand.
I talk about those questions and more with our very own Josh Wolfe. We riff on Lux’s most recent LP quarterly letter, which emphasized the tension between the nihilist antihero of V for Vendetta against the collaborative community at the heart of scientific progress, and we debate the promise of greater prosperity against the concerning signals of stagnation that are talked about relentlessly in the press.
In addition, we discuss why scientists continue to compete so ferociously for recognition; the sins of human nature; why the cultures of labs, schools and nations is so vital for progress; recent capital market changes particularly around interest rates; AI’s influence in the sciences; and finally, how VCs will make money in AI — and how they can also lose tens of billions of dollars as valuations evaporate.
🔊 Listen to “Our new world order is one where algorithms can wield as much influence as armies”
The Orthogonal Bet: From Online Communities to In-Person Programming
Lux’s scientist-in-residence Sam Arbesman speaks with Omar Rizwan, a programmer currently working on Folk Computer. Omar has a long-standing interest in user interfaces in computing and is now focused on creating physical interfaces that enable computing in a more communal and tangible way — think of moving sheets of paper in the real world and projecting images onto surfaces. Folk Computer is an open-source project that explores a new type of computing in this vein.
Sam engages with Omar on a range of topics, from Folk Computer and the broader space of user interfaces, to the challenges of building computer systems and R&D organizations. Their conversation covers how Omar thinks about code and artificial intelligence, the world of physical computing, and his childhood experiences with programming, including the significance of meeting another programmer in person for the first time.
🔊 Listen to “From Online Communities to In-Person Programming”
Lux Recommends
- Per the above note on China nukes, four researchers at the Atlantic Council have published an important new report on China’s evolving nuclear capabilities and a call for a much more robust rethink about how we consider the country’s strategy and intentions. “China’s rapid expansion of strategic warfighting capabilities (i.e., nuclear forces, space/counterspace systems, and cyber/information operations) represents tremendous discontinuity in the pace, scope, and scale of the PLA’s transformation, necessitating a major US reassessment of Chinese strategy, doctrine, and warfighting operations.”
- Sam recommends Dave Eggers’s contribution to The Washington Post’s series on “Who is Government?” centered on NASA’s famed Jet Propulsion Lab entitled, “The Searchers.” “To recap: For thousands of years, humans have wondered whether life is possible elsewhere in the universe, and now we’re within striking distance of being able to say not only yes, but here. And yet this is not front-page news. I didn’t really know how close we were to this milestone until I visited the Jet Propulsion Laboratory near Pasadena, Calif., on a hot and dry day in June.”
- Robert Caro’s The Power Broker turned 50 this month, and the accolades continue to pour in. One person not having any of it is Henry Grabar at Slate, who argues the book is increasingly out-of-date for understanding the dynamics of modern New York City. “Despite modern politicians’ insistence on using the book as a political compass (in addition to [Eric Adams], his mayoral challengers Brad Lander and Jessica Ramos cite its influence), we are living not in the world of Robert Moses but in the one that arose in his absence. The federal interest in cities was already dead by the time Joe Biden entered the Senate; it is the seesaw of disinvestment and private capital, not overpowering government intervention, that has determined the shape of the urban landscape since.”
- Our occasional Riskgaming columnist Michael Magnani recommends Ben Connable’s analysis in War on the Rocks, “Russians Do Break: Historical and Cultural Context for a Prospective Ukrainian Victory.” “Putin has a breaking point, or at least a point at which he will settle on terms he finds unfavorable. While he presently retains dominant control over the state and enjoys at least an imposed version of popular support, Putin is aging and may be weakening. His surprisingly passive and initially incoherent response to Yevgeny Prigozhin’s revolt in 2023 caused a reexamination of his carefully constructed aura of invulnerability. Putin’s equally lethargic response to Ukraine’s 2024 Kursk incursion and his increasingly fantastical claims about Russia’s economy reinforce perceptions that he may be hurting.”
- Finally, MrBeast (Jimmy Donaldson) is one of the most influential creators in the world, commanding a YouTube channel with more than 317 million subscribers who watch ever-more zany and ambitious videos. His employee on-boarding guide was leaked, and while it is not brilliant in its insights, it is a fascinating look at the distinctiveness and culture of digital media. “We also want to do something around the 3 minute mark called a 3 minute re-engagement. A re-engagement can be described as content that is highly interested that fits the story and makes people genuinely impressed. Another way to look at this is it’s a segment that ‘only MrBeast can do this’. It’s important to re-engage the viewer around this time because they could get bored of the story and click off. These re-engagements are usually spectacles and sometimes need lots of time and money to perfect. A good example of a re-engagement is when Karl was put in charge of watching Josh in the ‘$10,000 Every Day You Survive Prison’ video.”
That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.
