The problem is actually simple: we are getting fucked.

What’s so tempting is that the details of just exactly how we are getting fucked are so compelling, when stated thoroughly, that it is a…

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I realized, by March 5th, that the Iranians had successfully closed the Strait of Hormuz, and that CENTCOM did not have the assets available to re-open it by force. By that point it became clear that the Iranians had won the war, assuming that they could successfully weather the attempted decapitation strike (which, by the end of the next week, I think they had). I penned my own offer of American surrender back then.

The efficacy of Iranian drones and ballistic missiles in penetrating American defense systems only raised the ceiling on just how much damage an extended conflict could inflict on regional infrastructure, from refineries to desalination plants. The Iranians had established “escalation dominance” alongside their control of “duration costs.”

By the end of March, it was my assessment that—absent a dramatic escalation from the US, essentially in the form of a land invasion actually capable of achieving “regime change”—the Iranians would dictate the terms under which the conflict would conclude.

The “efficient cause” of Iran’s leverage via Hormuz is global energy costs, principally petroleum products and natural gas. The Strait is vital for all kinds of other things, from fertilizer to aluminum, but it is the energy that gets the headlines. This became front page news and so I am sure you are well aware of this situation, at least in a general sense.

In the context of my argument regarding geography and economic growth, the coming impact of the world’s largest ever energy crisis on the global economy seemed to be the most salient very-short-term variable in the formula. The oil price has two impacts, one direct and the second at a one-step remove.

The direct impact is that “demand-destruction” price levels in oil are recessionary on a global level. The shortage will cause the price to spike enough to balance supply and demand, and this is achieved by contracting economic activity.

The secondary impact is, in our particular macroeconomic environment, even more dangerous: inflation. Although not calculated in “core” inflation reports, as energy is excluded alongside the other “volatile” sector of food, energy price spikes filter into core inflation via their impact on essentially every layer of the economy: industrial inputs, transportation costs, etc etc. I’m not telling you anything you do not already know.

Inflation in the bare sense does not necessarily always imply bad things. China, for example, has been struggling with domestic disinflationary tendencies. But for the US, and the global dollar-euro-pound-yen system, inflation has been the definitive macro-economic problem of the last half decade, following the unprecedented pandemic liquidity injections and the energy shock in Europe after February 2022.

The effects of this inflation have been very politically costly. In the US, it has helped to produce the obscene scenario we find ourselves in today, euphemistically referred to as the “K-shape economy.” This is an economy where different classes (I suppose here denoting, literally, “capital owners” from “wage labor,” asset owners vs non-owners) have very different economic situations. The result is that consumer spending—which comprises the fundamental base of economic activity—is dramatically bifurcated. This creates a world where the difference between “the stock market” and “the economy” essentially becomes a fun-house mirror caricature.

Asset owners can easily keep up with inflationary trends, as their assets increase in nominal value alongside broader prices in the economy. In our present case, this nominal increase is also a real increase in purchasing power, which has produced the “wealth effect,” in which domestic consumer spending (dominated by the top 20%) is anchored not necessarily by income but by asset prices. The rich feel richer, and are spending accordingly.

Wage earners, however, are experiencing the opposite. Businesses are much quicker to upwardly revise pricing than they are to upwardly revise wages. As a result, many wage earners have found their nominal worth remain stagnant, although perhaps after an early step-change around the “great resignation” in the immediate aftermath of the vast amounts of benefits distributed to cushion the blow of closing the economy during quarantine. But any future increases have often been elusive, and prices in the broader economy have continued their relentless march upwards. The real purchasing power of wage earners has declined—at least relatively—to the rich.

If our society did not have democratic institutions, this might not be a problem: the rich and powerful do benefit from this arrangement (at least in the short term).

But because we do, inflationary pressure that reduces the relative spending power of 80% of Americans is a massive political problem. It is a common belief that this essentially determined the outcome of the most recent presidential election, for example.

The institution responsible for solving this problem is the Federal Reserve, and their principle tool is their control over the Secure Overnight Financing Rate, or SOFR. Lowering or raising the SOFR sets the pace of interest rates throughout the rest of the US economy, and consequently the world. Whether you believe this is for mechanical or psychical reasons, mortgage rates, credit card rates, car loans and even sovereign debt move in expectation or alongside the SOFR.

The US Federal Reserve is constitutionally assigned a dual mandate: ensure full employment, and control inflation. These two mandates often pull in the opposite directions, as lower interest rates can increase employment while also increasing inflation, and higher rates can do the opposite. Balancing these forces was the life project of our previous Fed chairman Jerome Powell, who hoped to be able to increase rates just high enough for just long enough to tame post-quarantine inflation without causing enough employment disruption as to cascade into a recession. This was the so-called “soft landing.” It was always going to be a delicate matter.

It appeared as though Powell might have achieved it, however, by the end of 2024. A huge rate spike in 22-23 had produced a “bear market” in equities, but it had not produced a recession in GDP terms. And markets had begun to recover. This, however, quickly encountered turbulence in the face of the new administration’s tariff policies. Many on the Fed board argued, optimistically but not necessarily unreasonably, that inflation produced by tariffs would be “transitory” as the new rates filtered through the economy as a kind of one-time shock. Trump’s temporary fed appointee Stephen Miran went as far to argue that there would be no inflationary impact at all. Together they decided to continue to lower rates from the “restrictive” policy they had in place previously into a “neutral” policy that could ease off the disinflationary brakes.

The new administration took this a step further, as the President made the case publicly that “Too-Slow” Powell needed to cut rates beyond neutral and into “easing.” He became so frustrated by Powell’s perceived (although constitutionally mandated) insubordination as to seek felony fraud charges against him, a campaign that extended to Fannie Mae and Freddie Mac director Bill Pulte (as of this week now also our Director of National Intelligence) making additional fraud charges against Fed Governor Lisa Cook, a case currently being presided over by the Supreme Court.

While it was de jure verboten for him to do so, it was widely speculated that Trump would decide on Powell’s replacement as Fed President via the criterion of who would be most likely to follow his instructions and cut interest rates. Although the appointment was held up in congress by the committee until the Federal Attorney for DC Jeanine Pirro (previously the host of the Fox television show “Justice with Judge Jeanine”) dropped the fraud case against Powell, as of last month Trump had succeeded in getting his man—Kevin Warsh—into the president’s chair. The stage was set for a new regime at the Fed that would have had a “dovish” bias baked in.

Okay, so, this business about interest rates seems totally separate from the Iran conflict. It is not. It is the heart of the Iranian strategy. This has been a war fought on twitter and the stock market tape, but perhaps the most important tweet so far has been this one:

“Their frontline is the yield curve.”

The Iranian plan is simple: close the Strait of Hormuz, create a spike in global oil prices. This oil price spike will filter through global economies as an inflationary wave, perhaps as the straw that broke the back of the camel named “Soft Landing”. Inflationary pressures would be so undeniable that even someone as politically pliable as Warsh would have no choice but to hike rates.

So far, their plan is working.

[Market expectations for SOFR rates, as of February 27th (blue line) and mid-May (Purple line).]

In a sense, causing a global recession due to energy demand destruction is not the immediate objective of the Iranians. Their primary goal is to raise bond yields on US Treasuries.

At an immediate level, this produces significant pressure on the US Treasury and its Secretary, Scott Bessent. Since Yellen’s tenure, the Treasury had increasingly taken advantage of low interest rates on the short-dated end of the yield curve (low rates produced by central bank reactions to 2008) by issuing most of the new US-debt as short term bonds. Powell continued and expanded this process, particularly in the low interest rate environment of the pandemic. A massive spike in bond yields caused by exogenous forces beyond the central bank’s control is a real threat for this policy, as quickly maturing bonds would have to be repaid by new issuance at substantially higher (and unplanned for) rates.

But Iran likely knows that Trump is not so concerned with bankruptcy, especially if it almost certainly will not be his own immediate problem. Their interest in spiking bond yields is aimed at something much closer to Trump’s heart: equity markets.

~

The AI-bubble would have, on its own weight, burst sooner or later. That is the nature of speculative infrastructural bubbles, the canonical historical example being the railroads. Companies duel in an existential battle to outspend one another to be able to corner what they presume will be a highly lucrative monopoly over an economically essentially infrastructural bottleneck, in this case computing power rather than rail lines. But multiple railroads to the same place are a losing proposition in the medium- to long-term, and so much of this spending will have been done by the eventual “losers” who will not generate the necessary return-on-investment to pay back their creditors.

At first, the unique attributes of the 21st-century American “hyperscalers” did something to alleviate this fear, as the ungodly amounts of free cash flow (FCF) generated by their high revenue, low operating cost business models meant that they could plow huge amounts of capital into railroad building without needing to resort to credit markets. For a decade or more, this meant that these companies could basically burn money with no consequences. Take, for example, Zuckerberg’s commitment to incinerate billions of dollars to create a “Metaverse” inhabited by absolutely no one.

This situation has changed dramatically in the last 12 months. The percentage of what was hyperscaler FCF now being spent as operational costs to build data centers and acquire computing power accelerated dramatically between 2022 and 2025. Indeed, by the end of 2025, the hyperscaler’s free cash flow has completely evaporated. It is now 0 across the sector.

The data center nuclear war, however, has grown larger and at what can now only be described as a hallucinaturly feverish pace. The hyperscalers need more money than ever before, and their FCF has already been fully allocated. This has forced them to turn to public markets to raise capital. Perhaps you can start to see the problem. Just as these companies are hitting the steepest part of the spending incline, their FCF engines have run out of fuel. They desperately need more money, and every time one company raises money, the others have to rush in to match or risk being left behind. This has produced a dramatic storm in capital markets that has essentially only just hit shores as of last week, with Alphabet’s surprise announcement of an $80 billion equity issuance—the largest nominal amount ever in the history of capitalism. It will continue this week with the SpaceX IPO, which is of a similar size. It then proceeds in short order to the Anthropoic and OpenAI IPOs, each of which is expected to fetch valuations in excess of $1 trillion. And to add even more fuel to the fire, Alphabet’s surprise gargantuan equity issuance has caught the other hyperscalers flat footed, and will almost certainly force them to follow suit—indeed, Meta has already signaled that it will.

Even if the Iran situation wasn’t happening, this kind of explosion in demand for liquidity would leave markets uneasy. The shape that the SpaceX IPO is taking should be a clear indication of this. Rules and norms put in place across indices and brokerages are being suspended to make room for Musk’s empire. The NASDAQ 100 has dramatically shortened the timeframe and requirements to enable SpaceX to join the index with haste, and gain access to massive amounts of passive investment flows from American 401k target-date funds. Fidelity, a brokerage which handles a significant percentage of American 401ks, has lowered its traditional account value requirement to participate in IPOs (typically between $100,000 and $500,000) to a mere $2000. Most IPOs are heavily oversubscribed by institutional investors, and only open 5-10% of the equity float to retail traders. SpaceX is offering a 30% retail float. Goldman Sachs, which is underwriting the IPO, has projected that SpaceX’s AI revenue (currently $3.3 billion annually, at least according to SpaceX), will increase 100 fold by 2030 to an ungodly $330 billion dollars—roughly equivalent to the revenue of the world’s second largest oil company, Exxon Mobil. A $327 billion dollar revenue expansion in less than half a decade… no wonder institutional investors are reluctant to participate at this price point. I’m not sure how many trillion dollar companies concern themselves with selling $200 coffee mugs via twitter ads. Again, this bubble was perhaps in the process of bursting already.

The last quarter has seen a volte face in the pricing models of all the major LLM services regarding how they charge for usage. Token use was, until perhaps the last 2 months or so, massively subsidized. This is a textbook 2010s-technology-company move. Secure adoption through negative margins, then slowly scale into free cash flow over time. The first half of this strategy worked like a charm. Companies were dazzled by the potential of the technology to automate large swathes of their administrative operations and virtual-customer-facing interactions. Huge “reductions in force” ensued. Many of these companies began measuring employee productivity by tracking how many tokens they spent over a period of time, even posting public leaderboards celebrating the heaviest users. Employees, worried of being next on the chopping block, began automating the consumption of useless tokens to inflate their numbers—at least anecdotally. Spend, spend, spend. And the headlines rolled in about just how much compute all of these businesses were using, just how many jobs they could automate…

Sometime around the end of February, this changed. The LLM companies began charging their clients not for subscription-like access, but per token used. The recency of this change makes discerning its precise impact difficult. But there have been at least two noteworthy developments. Uber put a monthly cap on the usage of tokens per employee at $1500. This is a fraction of what they were previously consuming. A yet-to-be-revealed company reportedly spent $500 million over a single month on accident, not having even taken note of the severity of the switch in method of cost. “We spent our annual budget in a month,” the story goes. The initial market reaction was positive: wow! These things can generate 12 times more money than we even thought! That seems a bit wishful.

One interesting indicator I have been following is the fate of Software-as-a-Service (SaaS) stocks and cybersecurity stocks. During the most intense phase of this hardware-memory melt up, SaaS and cybersecurity were getting taken out behind the shed. Brutal. The narrative was simple enough: for SaaS, AI could do all of it’s tasks faster and cheaper: book you a flight and a reservation, find you a hotel, suggest a place for dinner, offer options for activities the next day… I mean this is the basic premise of all the consumer-facing AI ads we are inundated with on TV1. For cybersecurity, this peaked when Anthropic unveiled its newest frontier model “Mythos” in March, precisely by shrouding it in secrecy and declaring it was so powerful that its public release could jeopardize global financial markets. The threat was dire enough to prompt Treasury Secretary Bessent to assemble an emergency meeting of the country’s most powerful financial executives to discuss its repercussions. Traditional cybersecurity got clobbered, the idea being that AI was so good at hacking only other AI could stop it.2

However, over the last few weeks, these trades have been brought back to life… you could call it a technical upwards correction in response to being oversold in the midst of a secular bull market. Or you could think: hmmm… maybe AI can’t really replace this stuff after all (the chart below does not include this correction and I don’t have the tools to make an updated chart so just take my word for it that this change-in-trend has recently begun to regress towards the mean).

Last week, in addition to the Alphabet equity issuance and the SpaceX IPO details, we also saw the first big quarterly revenue miss from one of the AI darlings: Broadcom ($AVGO). AI compute revenue came in at $16 billion, undershooting the Street’s consensus estimates of over $17 billion. Broadcom (currently the 5th largest company in the US by market capitalization) saw its stock crater by 12% overnight. This Wednesday night fiasco triggered a general rotation in the market on Thursday, which saw a large number of the “momentum” stocks in the AI hardware trade—chips, but especially memory—sell off, as investors moved their money into more defensive sectors (healthcare, consumer staples, etc). This cascaded into a broad market sell off on Friday, in which the NASDAQ drew down over 4%—in nominal terms (that is in “point loss” rather than percent), this was the worst day in the history of the NASDAQ.

It is totally possible that this would have happened on the same time frame had the Iran war not occurred, but I believe that the macroeconomic consequences (and, as I will discuss, the contingent impacts on the “structure” of the equity markets, in terms of their order flow) of the war will make this problem much worse than it already might have been.

~

I mentioned above the inflationary effects of rising oil prices and the effects of that inflation on interest rates, which I further suggest are the broad macroeconomic surprise that could accelerate the AI bubble bursting by unexpectedly increasing the cost of debt at exactly the worst moment. However, this problem only comes to pass if oil prices do in fact rise.

That oil prices will rise might seem like an obvious conclusion given the facts on the ground. The curious thing is that they haven’t, at least not really. The peak price above $145/bl on the Brent index, and its sustained cost above $100 through the summer months of 2022 (caused, again, the Russian-Ukraine war—see part 1) have not been matched at present, despite the fact that the physical disruption to flows is an order of magnitude larger.

This is the central problem I have been trying to grapple with. I have a broad thesis that political control of geography can meaningfully impact short- and medium-term growth, and it would be in a sense verified if the closure of the Strait of Hormuz proves capable of producing an energy price spike of sufficient magnitude to have global macroeconomic effects. So far its impact has been rather muted. Why? Am I over-estimating the importance of this event? Or is something else going on?

There are two arenas of this problem. The first is material: what is the actual state of global oil flows and inventories? The second is psychic: how has the administration’s “jawboning,” alongside the recent price history of the oil market, played a role in capping prices?

The material arena is the realm of those I call the barrel mathematicians. These are the commodity experts who track global oil flows and inventories down to the last drop with a wide array of sophisticated techniques, many of them involving satellite imagery of tanker traffic and storage volumes (flow can be tracked by following ships, as the extent of their load can be estimated by the ship’s draft; inventories can be measured by the angle of the shadow cast by on-shore tanks, as maintaining proper pressure requires the height of their roofs to be adjusted according to their fullness).

(Top image: the tanks at Cushing, Oklahoma, at the height of the COVID oversupply crisis, April 24th 2020. Bottom image: the same tanks on June 9th, 2026)

With the exception of debate around a single (albeit very consequential) unknown variable that I will discuss shortly, the barrel mathematicians have generally reached the same conclusion: the total lost production of oil (accounting for the capacity for some barrels to be rerouted outside of the Strait) in the Gulf comes in somewhere around 13 million barrels per day. This is a larger disruption in production then every other global oil crisis in history combined.

This unprecedented shortage has been countered so far by equally record breaking coordinated releases from the national strategic petroleum reserves of the member countries of the OECD, totaling 400 million barrels, alongside the issuance of waivers that allowed the transport and sale of previously sanctioned Iranian and Russian oil on water (which combined was about equivalent to 60% of the coordinated SPR releases). This has greatly helped to stabilize markets for now, but the world’s two most important suppliers of the so-called “marginal barrel”—the US reserves and the Japanese reserves—are draining at record breaking pace, and could soon threaten to hit operational minimum levels (whether this happens in June, July, August… the barrel counters dissent). Once that marginal barrel has ceased cushioning global demand, a regime of demand-destruction pricing will have to set in to balance supply. This would be a big spike, but to exactly what dollar price the barrel mathematicians disagree.

Everyone knows that running this deficit in oil cannot last. So why has price not increased to slow demand, and extend the duration of the emergency supply?

Well, the President’s “jawboning.” This situation only becomes a crisis if it persists. If the Strait can be reopened soon, perhaps everything can readjust before dangerous inventory levels are breached. As such, for much of the last four months, the President’s Truth Social account was the single most important factor in global oil markets.

Trump’s influence over oil prices produced an equal but opposite movement in equity markets, as since the beginning of the war they had become inversely correlated to oil—largely because of the presumed effect of rising oil prices on the direction of future interest rates.

In other words, given the importance of US bond and equity markets to the world economy, the fundamental movements of the global markets were turning on Trump tweets.

Most market participants were taking the movements in oil prices as a proxy for the disembodied “market’s” prediction regarding the outcome of the war. Investors came to assume that declining oil prices meant that the smartest people in the room were betting that the war was ending sooner rather than later, and things would be going back to normal. Thus, not only did falling oil prices cause stocks to rise, it concentrated that rise in the “risk-on” segments of the market: namely, the AI trade.

Many investors took the risk even farther, and put their money in leveraged etfs rather than the stocks themselves. These leveraged “exchange-traded funds” offer boutique bets. They allow retail investors to try to capture 2x or 3x the daily return on specific sectors and stocks. So the 3x “long” semiconducter index ETF—the SOXL—returns 3x the daily percentage gain of the underlying SOX. In a rally as furious as this one, that can compound quickly. Note that the SOX has gained 114.21% in this period, while the SOXL is up a truly remarkable 623.92% in essentially 2 months.

This regime change, from “risk-off” that characterized the equity drawdowns of March to “risk-on” that exploded upwards after the announcement of the ceasefire in early April, was supercharged by a contingent feature of the equity market in 2026: the belief in what was originally known as “the Trump put” and has since evolved into so-called “TACO” trade.

While the “Trump put” was developed during his first administration’s tariff skirmishes with the Chinese, and was a descendant of the “Fed put” of the “plunge protection team” activities of 2008, its evolution into the truly unique “TACO” trade came during last year’s “tariff tantrum.” Immediately following what Trump called “Liberation Day,”—his announcement of his administration’s radical, almost unthinkably punishing tariff regime—equity markets nosedived. The drawdowns became so severe that early the following week, after posting a Truth Social proclaiming “Now is a great time to buy! -DJT,” he posted again that he was issuing a “90-day pause” on his just-last-week announced tariff policy, which supposedly going to be the bedrock of his administration’s economic agenda. White House Economic Advisor Peter Navarro, who had served federal prison time to protect the president, was shoved into a closet and never heard from again. Oh well.

Equity markets went absolutely nuclear. The S&P 500 rose 10% in an hour.

Any investors or institutions that had spent the prior months building up protection and entering into more defensive positions were brutally punished by the following “lockout rally.” The traditional strategy of the buy-side institutions in risk-off environments—investing in quality companies with predictable fundamentals, taking out short positions on dangerous speculative ventures—was blown up in an afternoon. Portfolio managers that had “done the right thing” were left in the dust, with only angry calls from clients demanding to know why they didn’t share in the rally’s returns to keep them company. Those that had positioned even more aggressively for a downturn lost their jobs.

The message was simple: no matter what insanely stupid thing that Trump does which threatens to blow up the global economy, as soon as US equity markets drop more than 10% from all time highs he will move hell and high water to U-turn.

In other words: being risk-off was actually the riskiest thing you could do.

This phenomenon reproduced itself again in late March and early April.

As Iranian ordnance rained down on Gulf energy facilities, US equity markets tanked. The NASDAQ was down almost 20%, peak to trough: a technical bear market. Everyone suspected that a TACO was in the oven. While the President’s deranged threats kept markets on edge (“OPEN THE FUCKING STRAITS YOU CRAZY BASTARDS,” “A WHOLE CIVILIZATION WILL DIE TONIGHT”), the clever were in the wings waiting for the U-turn.

It came on April 7th, at the request of Pakistan. The price of oil collapsed, having its second worst ever day, only topped by the day crude prices reached -$40 on 4/20/2020 against the backdrop of quarantine. Stocks skyrocketed.

The abrupt regime shift of “risk-off” to “risk-on,” particularly under the TACO trade, produced a dramatic effect in equity market order flow. Investors rushed to close out short positions and replace them with longs. This resulted in a self-reinforcing “gamma squeeze” as more and more calls hit the tape, forcing options dealers to buy the underlying stocks as a hedge, which further increased the price, raising the value and volume of the calls, and forcing the dealers to buy more stocks.

The most dramatic immediate moves came in stocks that had seen the highest short interest over the previous month. My favorite example is the car rental company Avis ($CAR). You can probably imagine why such a company, already under duress, was shorted as a hedge against an oil price shock. Well… those geniuses got absolutely destroyed.

The problem was that this cascading short-squeeze caused such a rapid and dramatic rise in equity prices that it triggered a second accelerant: the high-frequency trade that has come to dominate many of the biggest hedge funds after the rise of internal “pod shops” at these institutions, who often chase intraday momentum in equities with high volume, high frequency trades set with incredibly tight “stop loss” prices. The momentum pods chasing the gamma squeeze powered the immediate move in stocks even higher, such that the third and slowest layer—the passive index flows—likewise were triggered by “buy signals” as indices, sectors, and individual stocks broke through key institutional technical levels (typically moving averages of various durations: the 20-day, the 50-day, the 200-day).

In other words, the April 7th TACO produced a cascade of technical changes to the equity markets that produced a dramatic rise in stock prices. As a result, the S&P 500 is now 10% higher than it was on February 28th, despite the fact that since then 20% of global oil production has been disrupted and 12% has been stopped altogether. But if you can believe it, oil and gas equities are lower now than before the war.

Our earlier Avis example continues to be instructive regarding the weird technical effects produced by the nuclear TACO.

Avis is a component of the Dow Jones Transportation Average. The Dow Transports is often taken as a leading indicator of expected future economic activity, as increases in freight and shipping are typically expressions of expansion. In the two weeks following the ceasefire, the Dow Transports had their sharpest and best ever run. This was one of the many signals interpreted by the trading algorithms as “bullish” equities.

There was only one problem: the entirety of the index’s gain was due to the Avis short squeeze. In fact, the rest of the index was actually lower than it was at the end of February.

Given how the Avis stock fared once the squeeze relented (notice how its price fall of a cliff to return to essentially where it was before the squeeze began), you can imagine why the broader trend indicated by this kind of movement might have created some problems that haven’t necessarily come home to roost yet in broader equity markets.

This “risk-on” short squeeze that brutally punished anyone who had taken protective measures against downside risk over the prior month was the first phase of the recent stock market melt up, but it was mainly a kind of ground-clearing, uprooting any investor positioning that might have served as a force of gravity to keep markets tethered to the earth. The downside hedging—VIX futures, puts on the indices, shorts on hated stocks—got absolutely wiped out. The gamma squeeze produced a volatility crush that gave the markets what seemed like a clear signal: all engines are go for maximum risk-on mode.

And here is where we return to the AI bubble. By pure coincidence, the gamma squeeze/vol crush of the first and second week of April led directly into perhaps the most monster earnings season ever seen in.3 The hyperscaler war to Capex death had resulted in so many orders for data center components that it produced epic bottlenecks up and down the supply chain. Over the back half of 2025 and the first quarter of 2026, the tightest of those bottlenecks was in RAM, particularly the top-of-the-line DDR5 components.4 These are manufactured by only a handful of companies globally. And when they reported earnings—right alongside the hyperscalers reporting estimates for dramatic increases in Capex—the whole upward gamma squeeze entered an entirely new gear. Here are a handful of the largest memory manufacturers:

Of course, you might notice that dramatic fall-off-cliff action at the end… yeah that was Friday’s wipe out, which I explained above as triggered by the combination hyperscaler equity issuance/broadcom revenue miss.

But a 12% drawdown is hardly a flesh wound for companies that are up 200-600% in 6 months. Unless, of course, the primary vehicle that had been driving their prices upwards were heavily leveraged etfs… You can guess where this is going. Most of this activity has been concentrated in the Korean index, the KOSPI. We will see tonight (Sunday, June 7th) how the Asian markets respond to Friday’s action…

Again, this AI bubble was going to pop regardless, but the (now entirely ignored by price action) risks of the war, combined with the dramatic change in market structure that followed the TACO and created a huge over-extension in speculative activity, have likely made this situation far more dangerous. What might have been a painful tech bubble is now threatening to become a global liquidity crisis. Sharp eyes have been glued to USD/JPY, as the Bank of Japan has spent nearly $100 billion since the start of the war to defend the 160:1 exchange rate. If, for whatever reason, the BoJ’s ability to simply buy yen to protect the peg starts to falter, and they are forced to raise what have already become unprecedentedly high interest rates (at least at the long end of the curve) on Japanese bonds, the entire “Yen carry trade” could be put in jeopardy. And spiking dollar-denominated oil prices are a huge inflationary risk to the currency of a country that imports >90% of its crude.

~

This brings us back to oil prices. I argued above that they have been effectively suppressed by “jawboning” from the Trump administration, as headlines constantly assure us that a peace deal to open the Strait is imminent (“over the weekend,” “within the next few days,” “within a few hours,” … each of these timeframes have been floated seriously by international and regional papers of record).

Again, the key question is duration: how long will the Strait remain closed to tanker traffic? If it will open next week, then $95/b for Brent seems reasonable. Our reserves will have cushioned the supply shock, and flows will quickly normalize.

But there are a couple of problems here.

First, as I mentioned earlier, equity markets (that is to say, non-commodity specialists) have taken to reading the movement in the front month sticker price for a barrel of oil as an indicator of “smart money’s” prediction for the duration of the crisis. If oil is puking downwards, the experts must have a consensus that this is all but over. I think this is a very dangerous mistake, and a classic example of the maxim that “price drives narrative.”

Actual commodity specialists, concentrated at large commodity funds that typically do the heavy lifting in terms of “price discovery,” have been near entirely sideline from the market all together, for two reasons.

Reason A is what is called value at risk (VaR) limits. The vast majority of the large speculative commodity firms have technical limitations on how portfolio managers can allocate funds, and VaR is one of the most fundamental. VaR limits ensure that the proportion of capital dedicated to any single commodity in a broader portfolio is sized inversely to the volatility present in that commodity’s price. Because of the insane volatility introduced into the oil price by the trump TACO trade, where individual tweets can crash the price 20% in a matter of minutes, many of the largest participants in commodity markets are de jure restricted from participating in price discovery.

Reason B is more blunt and unforgiving. The few number of commodity trading firms that were (1) large enough to really move the needle, (2) run by people with sufficient conviction regarding the impact of the crisis, and (3) for firm-level-institutional reasons did not have the VaR restrictions that characterizes the majority of the industry, got absolutely obliterated and margin called by the volatility throughout March and into early April. The most famous of these is Andurand, the energy investment firm led by the world’s most confident oil bull, Pierre Andurand. At the March-end of accounting quarter Q1, Andurand had the highest quarterly returns of any large investment firm in the world, thanks to nearly their entire portfolio being in long oil positions. By mid-April, after the ceasefire, the firm had lost over 50% of its nominal value. RIP Pierre.

As perhaps put best by a veteran oil trader turned academic Dr. Ilia Bouchouev, “Everyone is bullish, no one is long.”

Instead, the amount of open-interest in oil futures has cratered since March, declining by well over half. Meanwhile, and perhaps surprisingly, the daily volume of contracts traded has remained proportionally elevated. People smarter than me have dubbed this the “algorithmic hot potato trade.” As most money is on the sidelines, fewer contracts change hands at a much more rapid pace as so called CTAs trade oil back and forth at high frequency and based on headlines. Thus, every time we get a report out of AXIOS or CBS or the NY Post where administration officials claim that peace is upon us, aglos sell. Every time an Iranian ballistic missile impacts a Kuwaiti airport, algos buy. But the TACO-induced market structure has produced a regime with a bias toward lower oil prices, not higher, so the cumulative result of the hot potato trade is downward momentum in the oil futures curve.

What this means, however, is that equity markets looking to oil prices to be an indication of some principled judgement regarding the duration of the crisis are making a mistake. The front month price is not signaling principled judgement. It is driven by a game of hot potato amongst headless chickens with a structurally bearish bias.

This trend has continued up to the present point for two reasons.

The first is that the barrel counters at the commodity firms, despite all their satellites, are totally unequipped to solve for the crisis’s most important variable: its duration. It seems to me that the regional MENA experts that serve as advisors to these firms are—as the kids say—ass. Nearly the entire US foreign policy establishment is misreading the Iran negotiations, as far as I am concerned. They are making, I believe, two fundamental mistakes.

Mistake A is that the present efforts to produce a memorandum of understanding (MOU) that can be a bridge to future negotiations will, on its own, be enough to restore traffic in the Strait to something approximating the status quo ante. The logic here is that the MOU will result in a “mutual re-opening” in which the US blockade and the Iranian blockade are simultaneously lifted in a kind of 1:1 reciprocal exchange. This is absolute nonsense.

If you remember, Bessent and Treasury actually issued waivers to allow Iranian oil exports into the market during the first month of the war. They were so desperate to cushion the initial shock that they had to pull every barrel possible from inventories, including Iranian oil on water. The similar waiver for Russian oil has been reissued every month since.

However, after the failure of the Vice President’s trip to Islamabad, the administration adopted the policy of blockade. My reading of this move is as follows:

The Iranians are well aware that the vast majority of their coercive leverage comes from keeping global oil flows restricted. Any relief, even temporary, dramatically reduces the strength of their position. They likewise, for obvious reasons, have 0 trust of the US in general and this administration in particular, as Trump withdrew from the JCPOA and then proceeded to surprise bomb them during the previous two attempts at negotiation. As such, it is only rational for the Iranians to insist on maintaining control of the Strait for the duration of the negotiations, as it is the only way they can gain certainty that American concessions will not be rolled back and the bombing resumed.

My thought has been that Iranian “opening” of the Strait would have to be phased along with diplomatic checkpoints, and this is what the Iranians signaled in their own version of the April 7th truce: 10-15 ships a day until the ceasefire is stabilized, perhaps 20-30 during the following preliminary negotiations, maybe up to 50 once the sanctions relief they are demanding is presented to congressional debate (which is a little recognized feature of this crisis, as the most damaging US sanctions are legislative rather than executive and statutorily require congressional approval to be removed), etc etc. Meanwhile, negotiating with Iranian control of the Strait is an impossibility for the Americans, because it essentially means that they have a loaded gun to their heads that will eventually go off unless they concede to maximalist demands.

As such, after being faced in Islamabad with the Iranian condition that negotiations will only occur while they maintain control of Strait traffic, the administration instituted the blockade policy precisely to negotiate it away as a kind of 1:1 mutual exchange. The blockade itself actually makes the US position worse, by removing another 1.5-2 million bpd of Iranian oil from markets.

In other words, it is delusional to think that a “mutual reopening” will be produced by any MOU. It is not anywhere close to a reciprocal exchange of leverage. Thus, mistake A: the MOU will not open the Strait. That will only happen gradually as a very painful and longwinded deal is formally concluded. Or it will have to happen by American violence. Both of these situations are catastrophic for global oil markets.

Mistake B has been US experts’ consistent dismissal of Lebanon and Hezbollah as central to the Iranian position. As recently as last Friday, David Ignatius went on Washington Week and swore up and down that the Iranian’s were only cynically using Lebanon to extract a little more out of a deal. Ex-pat Iranian experts in Europe have consistently disagreed. They say the security situation in the region has been irrevocably changed by this war, and that Iran’s demands for a ceasefire “on all fronts” is dead serious. They argue that not only is there significant domestic political pressure within Iran from the slice of the public that supports the hardline government regarding their moral obligations to their Lebanese allies, but that the IRGC is fundamentally committed to institutionalizing the remaining components of the “Axis of Resistance” as a loadstone of their regional deterrence architecture moving forward.

This is a sticky problem, as the main reason for the full scale Israeli invasion into southern Lebanon was been to grant Netanyahu a veto over any peace negotiations. This last Monday the problem became acute and, I think, undeniable, as Trump had to scramble to restrain Netanyahu from crossing the red line by bombing Beirut’s southern suburbs, reportedly calling him “FUCKING CRAZY” over a private call before announcing via Truth Social that he had “spoken to Hezbollah” and secured a ceasefire in the region. This, of course, immediately frayed, and as of today the Israelis have in fact launched a symbolic bombing of Dahieh. The Iranians have just responded by launching strikes on Israel.

I suspect that the Iranians will keep the Straits closed well passed any ceasefire, and will demand actual withdrawal of the IDF from south Lebanon… and maybe even extend their demands to Gaza, where this all began. Given how quickly Trump jumped on Monday, they are probably feeling quite confident about this possibility. But that will not happen any time soon.

Because the US experts are terribly misreading the circumstances, in that they expect an MOU to result in traffic in the Strait returning to normal levels, the TACO insistence that an MOU is “95% complete” did a lot to keep a lid on prices through May. The slice of the commodity trading world that was participating in price discovery had to do so cautiously, for even if they believed (with me) that an MOU would be worthless, its announcement would almost certainly crash prices regardless.

As the calendar turned to June, the insistence that an MOU was right around the corner proved less and less effective at moving the oil futures curve downwards. But new data has emerged that has begun to augment the effectiveness of the administration’s jawboning. I call it the China problem.

Many of the barrel counters assumed that the sky would have crashed on us by now, but something unforeseen has helped delay the blow: China has cut it’s monthly crude imports in half, from ~12 million barrels per day to just over 6. If the US is the supplier of the marginal barrel, China is the marginal consumer. That 6 million bpd reduction has cushioned almost half of the total disruption out of the gulf, and SPR releases combined with brutal demand destruction at the periphery of the global economy (Eastern Africa, poorer countries in South and Southeast Asia) have balanced the ledger… for now.

(Above: life comes at you fast)

Exactly how and why China has been able to so dramatically reduce its crude imports remains the central mystery the barrel counters are trying to solve. One indisputable fact is that China has by far the world’s largest strategic reserve of crude oil, coming in at around 1.2 billion barrels before the start of the war. The mystery is how Chinese consumption has changed.

There are essentially two camps.

One camp, dominated by the majority of the commodity experts, argues that central planning has been able to do a combination of things. They have capped the price on gasoline, diesel and jet fuel at the expense of squeezing the margins of the state run refiners into negative territory. They have reduced those refining rates, to cushion the margin blow, and also likely have sold significant amounts of their reserves to their refiners at below market prices (while visible-from-satellite surface inventories in China have not demonstrably declined, China—like the US—has underground storage in natural salt caverns that cannot be measured without direct access). They have also redirected refinery production towards gasoline and diesel at the expensive of petrochemicals, whose shortage will come to bite in industrial production with a longer delay. The conclusion the commodity folks come to is that China will, someday, be forced to re-enter the crude market at close to previous levels, and that their reentry will result in a price spike if the production/flow problem in the Gulf continues.

The other camp, represented by the sell-side analysts and credit-rating bureaus (the relevant reports having been authored by Goldman Sachs, JP Morgan and Fitch, respectively) tell another story. They say that over the last three months, there has been a remarkable shift in global consumption of oil (especially in China) that could in fact prove permanent. The increased usage of electric vehicles, the move from personal cars into public transit or battery powered scooters, taking trains instead of planes—all of these adjustments to consumer behavior have produced a sudden 9% drop in gasoline consumption in China with no real demonstrable effect on economic activity. This suggests that a massive and unexpected shift away from oil could in fact be durable, and outlive the crisis itself. The result would be a structural shrinking of global oil demand that would add to what had been the trend since 2022-23: trending-lower oil prices, possibly as low as $45-50 a barrel by EOY 2027. Their argument, then, is that any price increase in oil is extremely transient, and will actually give way to structurally lower prices in the not so distant future. Message to the fed: no need to raise rates.

Now, that Goldman and JPM are each underwriting at least one of the trillion dollar IPOs sitting in the immediate pipeline might be a coincidence. Same with Fitch, whose occupation grading bonds and their interest rates certainly has no influence over these projections (just as their similar position in grading mortgage backed securities in the run-up to ’08 was totally innocent as well). The commodity people are probably wrong to point out that state mandated price caps on consumer fuels does not have the price mechanism to create the consumer behavior changes pointed to by the sell-side reports…

However, I myself have no ability to really evaluate this debate one way or the other. I am forced to admit that the sell-side story could be totally correct and a global revolution away from oil is now upon us. Only time will tell…

~

EPILOGUE: An Irony, and a Forecast.

The irony concerns that quixotic asset par excellence, bitcoin (and, by proxy, the “crypto” world in general).

It might have just died. Like it might be having a fatal heart attack as we speak. This chart, with volume doubling into the weekend while price is crashing… this is not what technical analysts call “bullish.”

I don’t think I am being too catastrophic to say that this asset is on its last breath. In terms of CAGR, bitcoin has now underperformed 10 year US treasuries since 2021. Badly. This “digital gold” has also been dramatically outpaced over the same time-frame by real gold, which has more than doubled in nominal value.

In my opinion, this stuff was always dumb as rocks. So its demise comes as no surprise. But what has totally blindsided me was the particular market conditions that delivered the fatal blow. Bitcoin was not killed off by a classic “risk-off” bear market. It has weathered those, back in 2018 under Trump 1 and then again in the high-interest rate regime from 2022-23. It had survived.

What killed bitcoin was a risk-on melt up in tech stocks. Incredible.

The second irony is that while the melt up started the bleeding, the real collapse was caused by another tragic characteristic of crypto as an asset class: its organization as, essentially, a multilevel marketing scheme. The premise of the typical bitcoin speculator was that if they bought it and held it for long enough they could sell it to someone else in a few (Months? Years? Decades?) for a million dollars. Sure.

This spirit was distilled, in its purest essence, in the form of one Michael Saylor, the “Executive Chairman” of the firm formerly known as Microstrategy ($MSTR), having recently graduated to simply “Strategy” as its legal name. Here he is the cover of the January 2025 issue of Forbes.

Saylor transformed his small business analytics data firm into what he calls a “bitcoin treasury” essentially overnight. The root of the scheme was this: take on debt to buy bitcoin. Other ways to raise money included the near constant dilution of share holders via at-the-market equity issuance, and the creation of a range of half a dozen or so classes of dividend paying preferred stock, marketed to the bitcoin curious as “basically a money market fund” that returned over 11% annual interest.

(Above: Michael Saylor claiming that its preferred stock was like a money market fund or a bank account, and was designed to “hold par” at $100/share. Below: STRC critically failing to hold its par at $100).

This could all work because the price of bitcoin would always go up. This trend would accelerate as Strategy itself continued to acquire large portions of available bitcoin (ultimately it has acquired nearly 3% of the total supply) but refused to ever sell it, increasing the de facto scarcity of the asset in the market and—per “btc maxis”—continually appreciating its value. Saylor expressed the essence of his thesis in a quote that has long since gone viral: “Sell a kidney, hodl [sic] your btc.” Or something like that.

Well, last Monday, Strategy revealed that it had sold bitcoin for the first time in over half a decade. The sale was minuscule, 32 total bitcoin out of Strategy’s stash of over 800,000. A measly 2.5 million dollars worth. The result was that bitcoin crashed 20% in 5 days and Strategy now holds its bitcoin stash at an unrealized loss of $10 billion dollars. Whoops.

Final irony? THIS WASN’T EVEN THE FIRST TIME. Microstrategy ($MSTR) was around in 2000. The market hit its top on March 10th. On March 13th, following news that Japan had entered a recession, there was a global sell off that targeted the hot momentum tech stocks and saw rotation into defensives, but the damage was minimal, maybe 2-4% on any individual company.

The first tech company to really burst came the following week on March 20th. That company? You guessed it! Michael Saylor’s Microstrategy. You cannot make this shit up. Here he is on the March 21st, 2000 cover of the New York Daily News.

I’ll be brief with my forecast. Even if AI works, it will be smote by democracy. Another odd piece of news at the end of last week was Trump’s announcement that he would hold an emergency meeting at the Whitehouse with the LLM firms, and discuss nationalizing a portion of their equity. He cited Senator Bernie Sanders as the originator of this idea. If Bernie wanted to socialize profits, it is quite possible Trump’s aim is now to socialize losses. Either way, I hope that true public power can gain a seat at the table.

-BHK

Its about the economy. I mean the market. Wait,

So the US equity markets (that is “stocks,” captured primarily across the four major American indices—the Venerable Dow Jones Industrial Average, the Humbl…

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Here is where things stand.

The problem is disagreement over the conditions for beginning negotiations, not yet problems in compromising on a potential settlement.

The Iranians need to keep control of the Strait for the duration of the talks. They (rightly) do not trust the admin to negotiate in good faith, and so they need to be able to have significant …

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It is finally dawning on people that there are no meaningful negotiations. The Americans have clung to the idea that they can demand significant Iranian concessions, which the Iranians feel they have no reason to grant. The Iranians, meanwhile, are demanding American surrender. Their terms, if met, woul…

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Our recent administration has done nothing but made a mockery of the aspirations of mutual respect that are the foundation of our vision of a ju…

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Anti-imperial praxis from subjects of the core demands one thing above all else in this moment: mortgage everything you own and buy long oil.

Part 2:

Well, that’s it. Curtains folks. The Iranians won the war.

There are three scenarios that can open the Gulf.

Scenario A: The Americans force it open.

Impossible. From a purely military perspective, the …

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Y’all idiots deserve what has befallen you and I’m busy making money.

Part 2:

Since Halloween 2023 I’ve been arguing that Sinwar’s objective for Al-Asqa Flood was to ignite a full regional war pitting Iran against Israel. Unless you think he was stupid, you cannot believe that October 7th was intended as a straight-forward military action. It’s g…

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A common epiphenomenon of this condition is accusations leveled at the constellation of external forces responsible for the broad momentums of the status quo. On the one hand this is an obvious deflection of personal guilt. On the…

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As they gather silver, and brass, and iron, and lead, and tin, into the midst of the furnace, to blow the fire upon it, to melt it; so will I gather you in mine anger and in my fury, and I will leave you there, and mel…

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~

First, a procedural matter: content warning. The events of the day involve some of the deepest collective traumas possessed by human memory.

To discuss them in a responsible way one cannot avoid talking about extreme violence. Grappling with this violence on an individual psychological level might b…

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(Season 2: Episode 1)

teehee XD DAM SON WHERE’D YOU FIND THIS ??

If the destiny of our planet is our subject, an American mind is my perspective.

Season 2 begins with a shot of the earth from space. It asks the question: what is the earth anymore anyway?

It cuts to a shot of a burning ca…

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(Season 1: Episode 1)

To be reunited with my computer …. A tool of unmeasurable power.

The mission is a mighty one: we must save America, and by extension the world. The problem is this. No one thinks we can do it.

Watch us.

~~~

The world sits precariously. Perched. The time for writing and saying and doing and acting and making and and and and

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7:02 PM June 5th, 2023:

The cracks in the sidewalk spidered outward, weaving a pattern that demanded to be submitted to palmistry. They intertwined in ways that suggested coy relations: this crack knows that one and another one too. It makes sense, almost all of the cracks look alike. Like cracks. Yet their positions in the crack-scape (their intersections and avoidances, where they start and finish) are not the product of mere chance. The cracks, at first apparently indifferent to the shapes spelled by their ridges, are all deeply practiced performers of a kind of pained nonchalance. The art of being cracked.

I had been following the cracks because they were in fact a great big map. And when I looked up I noticed I had arrived. Cracktopia!

Outside I saw Your Friends. No one wanted to be the first one to go in, as if such an act came with a complimentary death sentence.1 So they pretended not to be there.

Cracktopia was a door into a hallway that led to a stairwell which, once scaled, opened to a room that was pretty much empty except for “The Cobrasnake” taking pictures of a brick wall. As soon as my body crossed the room’s threshold the Cobrasnake horrifically melted like the nazi scientist who opened the ark of the covenant in that Indiana Jones movie and was reduced to a fleshy puddle of singed bones stained by the rapid boiling of blood.

For a brief moment, Cracktopia belonged only to me. This is the beauty of being early to things that people who fear responsibility fail to grasp. Cracks strive to belong on the street, not to own it or care for it. They want only to be seen.

My tranquility did not last long. Hearing that the blood-barrier had been broken and the tax paid, Your Friends showed up.

Quicker than I could cognize, the open room turned to a closed one. There was still space to move around but many of the night’s more transformative possibilities had been foreclosed by the arrival of Your Friends. The predominant pheremonic affect was fear.

There was a drum-roll and people pretended to be quiet. Eyes were directed upwards, to the rafters. A large insect played furious nightcore on a circus organ with all six appendages at once as a great vellum banner, meticulously inscribed in rare pigments, unfurled towards the floor.

EXTINCTION

it said, in a font resembling a prop ransom note from a batman movie.

Your Friends applauded and then left. No one looked too closely at the pigments on the banner and most trampled on its lower-hanging component, which pooled on the floor, while making for the way out.

I went with them, and smoked a cigarette outside.

~

When I came back up to the open-and-then-closed room it had once again changed its shape. It was now the scene of Great Discourse, an executive oak table worth more than my life positioned in its center. Many very important people (all of them young) were arranged in carefully sculpted chairs, and each sat behind a nameplate framed like a baroque painting.

The walls of the room had changed. We had been moved. The oak table and its assembled concilliar coterie had laid claim to a room too precious to ever rightly belong to anyone: the room of the Unicorn Tapestries at the Met Cloisters.

“Our World has Failed!” they all chorused at once, as soon as I walked in. There were no chairs left so I sat on the ground in the corner.

“Fear not,” said one, wearing a funny hat. “Our World has Failed. But as it was Our World, we are fortunate not to be cursed to fail with it.”

At this point the funny hat wearer seemed to take infinitesimal notice of me, now perched in the corner. The amount of scorn summoned and projected in my direction in such an incomprehensibly compact temporal burst could have powered a US Space Force railgun. But he continued, unbothered.

“In Fact, Given our Youth, Such Failure only Presents US with Opportunities! You may be aware that in our crumbling metropoli, the homeless spread across our streets like slime. Some of them even refuse to die, having the gall to ask for change while neglecting to contribute to even a single Series A round of funding.”

Another, ethereally pale and draped in a shear dress of exotic material, chimed in: “Quite right, Dryden, those rabble know nothing of economics. To make one million dollars you must first lose two!”

“Steward!!!!” the funny hat wearer yelled. A short, stout creature materialized, hovering in the air next to him.

“Yes master? What is your bidding?”

“Please take note of the lady’s insight. File away under: Financial Advice. Iterate, and return to me with one dozen ideas for start-ups capable of losing two million dollars.”

“Of Course, Master. Insightful!” The creature disappeared as suddenly as it had apparited.

“This is EXACTLY why I have brought you here” the funny hat wearer proclaimed, gesturing to the shear dress. “Us, and us alone, are capable of generating such solutions to the problems we face today … the many, many problems. It is as Hobbes said it was: ipso facto, there must be a KING! and Every King needs courtiers. We shall be such a class, a grand neo-nobility. And it is our birthright to live in a world free of slime.”

From the left-side of the table, a bejeweled figure eating candied cherries from a jar offered a riposte: “But like, slime is hot.”

The funny hat wearer, puzzled for only a moment, quickly gained a grin. “You raise a good point, Lady of Red. This is why our Grand Solution must be preceded by this very Great Discourse. In my haste I would have simply discarded the slime, but perhaps they could be of use yet!”

The cherry-eater, encouraged by such a hospitable response, continued: “Ya! like slime is so hot. Maybe we can like, keep them in a zoo. Like a slime zoo?”

The funny hat wearer was about to offer what seemed to be an elaboration on the slime-zoo concept, but was interrupted before he could begin. A booming voice exploded from the back-right corner of the table.

“THE SLIME ZOO IS IRRELEVANT!” A great swirl of sumptuous purple velvet produced a hand, which slammed into the oak. “AN OPPORTUNITY TO BEGIN ANEW REQUIRES THINKING FROM FIRST PRINCIPLES. NOW TELL ME, IS THE SLIME ZOO YOUR FIRST PRINCIPLE?”

The funny hat wearer, not too dense to interrupt a rhetorical question, allowed the robed figure of purple velvet to continue.

“The World was Ours because of our excellence, and our excellence has always been anchored in intellect.” The robed purpleion removed the garment’s hood, revealing a bespectacled face whose pudgy edges evinced its possessor as suffering from an extended period of infancy. “But intellect has been altered in these times of the late born! If intelligence has been our first principle, then our new city must start there. Tell me, Dryden, what shall be our new city’s policy on today’s most pressing issue, that of…” here the purpelion took a deep breath of reticence “… of AI?”

Groans immediately erupted from almost every chair. The once well-ordered meeting threatened to descend into cacophonous discord. The funny hat wearer did his best to return the room to composure.

“Silence! Silence please!!! We can only share ideas if we can hear each other!!! Your invitation here marks out your ability to contribute, and thus we all owe each other our ears!!! SILENCE PLEASE, WE MUST HAVE QUIET!!!”

The request was ignored. Many in the room had stood up from their chairs, some even circumambmulating the table to join this group or that as any coherence to the crowd or conversation was lost in the shuffle.

I kept my eyes on the funny hat wearer, who by this point had given up any hope in returning to the Great Discourse. His short and stout steward was once again summoned from thin air, and followed him, hovering, as he made his way towards the way out close to my corner.

“Steward, the great minds we have assembled are in need of refreshment to return to their focus,” the hat wearer remarked. “Please send in our supper.”

The steward, turning beet red, looked down to his small feet that floated above the ground. “I’m sorry, master, but our accommodations here have no kitchens.”

Within minutes, the angry crowd had devoured the unicorn tapestries adorning the room’s walls, desperate for any nutrition. It took only a few minutes more for them to start eating each other.

I made my escape through the door and locked it behind me.

~

TO BE CONTINUED

-bhk amanuensis

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