Ken Griffin of Citadel questions the economics of the AI infrastructure boom: ›What happens when GPU supply exceeds demand & pricing goes into free fall? ›Are today's semiconductor margins sustainable? Are investors overestimating the useful life of GPUs? “Look, I think this market is actually experiencing people doing research. For the couple of years, if you were on the thematic program of we're gonna spend hundreds of billions or a trillion dollars in data centers, we're gonna build compute at a scale never seen before, which companies in that story are choke points in supply chains that will have abnormally high margins? And who will be the big winners in this transformation? Will it be the Microsofts & AWSs who will be the gatekeepers to the foundational models? Like, who's going to earn the economic rents? But in some sense, like, 'I'm just gonna buy them all. I'm gonna buy the hyperscalers, I'm gonna buy the chip, I'm gonna buy businesses that make things I've never even heard of 5 years ago in Korea and Taiwan & in Japan.' And now we're reaching a point where people are becoming more discerning. We do realize that we are seeing extremely high margins in DRAM & MLCCs in areas where there are real supply constraints, but people are now starting to look out 2 years, 3 years. How long is this going to last? And in particular, I don't wanna be doom & gloom, but GPUs, like airlines, have a very low marginal cost to run. The incremental seat on an airline that's not full, if you can sell that ticket for $20, you're making money in that seat. And that's one of the reasons that the airline industry is such a nightmare, is because the moment you have overcapacity, pricing goes into free fall. We saw this actually with the telecom build-out back in 2000. We built more fiber than we had demand for, & the price of telecommunications just went straight down. If we reach a point where the provisioning of GPUs exceeds demand for GPUs, marginal pricing will actually go into free fall. And that really upends all the investment assumptions that people are working with today. That's issue number one. And issue number 2 is: I think people are taking a step back & saying, 'What is the useful life of a GPU?' Right here, right now, there's people that are earning extraordinary pricing on GPUs that are 5 or 6 years old. And so there's a growing set of concerns that I can't give the same capitalization rate or the same revenue models to year 7, 8, 9 of a chip in the future that maybe I was using 12 months ago. So I think we're really grappling with just how far will this demand carry us in the marketplace.”

For 45 years interest rates steadily declined as global bond markets believed in twin pillars of late 20th century capitalism: 1. Central banks have inflation under control 2. Moore's law and the attendant productivity boom will last forever Nation states took advantage of this conceit by ballooning their national debts with very little to show for it beyond ineffective welfare programs and completely needless wars. Now the time of reckoning has come. Even at rock bottom interest rates interest on the US debt (as an example) is already a meaningful chunk of the US budget (equivalent to all defense spending). As interest rates rise and more debt needs to be rolled, along with brand new issuance, the cost of borrowing is going to skyrocket for nations. This then flows on to all other debt markets such as the housing market which further suffocates national economies. Right now governments are trying to shuffle the deck and pretend a major bond crisis isn't on their shores, but this can only last so long. Exacerbating all of this is the global political climate shifting dangerously toward more socialistic policies across the West. The only potential savior to this looming crisis is an enormous and imminent productivity boom from AI. This cannot be ruled out, but even if productivity is improving rapidly in bits (such as coding) it will flow into physical industries much more slowly. It is unlikely to save us from the bond crisis to come. Whatever happens, we're likely in for a period of massive currency uncertainty and volatility. Exactly what Bitcoin was made for.

Do you truly know how much you matter? Do you know that you are enough? If you feel devoid of hope or joy, I will give you some of mine until you find your own again. Sending you all warm wishes for a beautiful day. #PeaceAndLove# #NationalSuicidePreventionMonth#