Preparation Precedes Blessings

The week ended on August 14, 2026. interesting news items to look at for the past fortnight are:

Preparation Precedes Blessings: One of the concerns I have is how our younger generation can cope with the rapid changes taking place in our society. Generational theorist Neil Howe describes the current period as the “Fourth Turning,” The Fourth Turning is a 20-year period of deep societal crisis that recurs roughly every 80 to 100 years. During this “winter” season of history, old institutional orders collapse and are violently rebuilt before a new cycle begins. So the big question is how does one move into the spring season, or does one get stuck forever in winter. (Fig. 1)

Based on Howe’s observation of (please note that the observation is restricted to 500 years of Anglo-American history), I like to set out certain markers that may be useful in our journey through this turbulent landscape.

1. Identification of the Seasons:  (a) Spring (1946–1963), post-WWII economic expansion, and massive infrastructure building. American hegemony began. (b) Summer (1964-1983), Vietnam war and cold war began to drain US economic vitality. Bretton Woods’ default and the beginning of the patrol dollar began, but they also signaled the decay of the financialized Anglo-American Empire. (c )  Autumn (1984–2007) Western societies began prioritizing the rise of a techno-elitist class over collective community. Trust in established international institutions decayed, culture wars intensified, and governance became more polarized. Winter (2008-2030). Triggered by accumulated institutional and financial decay (pegged to the 2008 financial crisis), this "winter" represents an era of systemic stress, deep political polarization, and institutional rebuilding designed to forge a brand-new civic order. (Fig. 2)

While Howe’s model above is useful for pigeonholing Western economies, China’s generational season is on a totally different time scale. China has gone through a particularly long winter of approximately 178 years, from the decay of the Qing Dynasty around 1800 to the final unification of CCP under Deng Xiaoping in 1978. For China, spring began in 1979 with accelerated rebuilding through 2012. China’s summer awakening began in 2013 and recognized that it needs to diversify away from reliance on exports to the West and to check its accumulation of surpluses in US Treasuries. The Spring season for China’s nation building will only be concluded by “China Standards 2035” after a successful implementation of “Made in China 2025”.  

As the Anglo-American Empire reached its inflection point in 2026 with the onset of exponential decay, China is neither ready nor prepared to assume the mantle of the sole superpower and global enforcer. My humble opinion is that we should expect a period of regional uprisings and power plays that will see new alliances and security structures formed, e.g. the Mecca Joint Defense Agreement signed on August 7, 2026, a tripartite security pact between Saudi Arabia, Turkey, and Pakistan. Often labeled the "Islamic NATO" or "Sunni NATO" in media commentary, the pact includes a collective-defense clause stating that an armed attack on one member will be treated as an attack on all.  (Fig. 3)  

Another recent incident to note is the mass crossing of Moroccan migrants into the Spanish North African enclave of Ceuta in late July 2026. Where a power vacuum develops, chaos is certain. (Fig. 4)

   

2. Identification of the Alpha in the Change Over: This is actually more tricky than a simple assumption that the Alpha will move from West to East.

Historically, the rise and fall of empires takes decades to unfold. So, by the yardstick of history, WWI and WWII were relatively short wars. WWI lasted only 1,574 days, and WWII lasted 2,193 days. The Ukraine war has already been going on for 1,634 days and is continuing. The U.S. Afghan war lasted 7,293 days, and the Vietnam War lasted 6,395 days. In my last blog, I commented that “the surprise was not that the U.S. achieved superpower status; the surprise was how the U.S. achieved it with so little cost and effort to itself.” Regional peers’ wars for dominance are measured in centuries. Until unification under the EU banner, various European powers had 5 centuries of conflict. (Fig. 5).

In China, it took two and a half centuries to bring the seven states under a unified Qin Dynasty. (Fig. 6).

In the 35 years since the disintegration of the USSR in 1991, there have been 10 major conflicts in former USSR states. (Fig. 7).

Since the 1990s, the U.S. has dismantled all of its military surge capacity based on a belief that no one could challenge her military supremacy and is now found wanting. As a superpower’s force projection wanes, allies’ previous dependence or an adversary’s apprehension will cause insecurity or boldness, as the case may be, for new security arrangements that will be destabilizing.  Europe, Japan, and the Middle East are on the move, and Russia, China, North Korea, and India have taken corresponding countermeasures. In the meantime, the show must go on in Wall Street, and the narrative is “everything is under control and there is nothing to see, folks.”  Few political or corporate leaders are actually aware and have prepared for an economic cardiac arrest and a prolonged winter. If the war with Iran goes the way of the Afghan war, the Strait of Hormuz would be blocked until Feb. 16, 2046. What if the endgame is twenty years of skirmishes and stagnation until the emergence of 10 nodes of regional power blocs?  How would one deploy one’s time, energy, and resources in such a scenario?

3. Identification of Bottle Necks, Choke Points, and Irrational Exuberance: Risks is not having prepared for the unexpected to happen. Foolishness is seeing the unexpected happen and not revising one’s actions accordingly.

(a) Military - The Ukraine War and the Iranian Wars have proven that mass-produced, commoditized communication devices on cheap drones and rockets are equalizers to sophisticated weapons of a superpower.

(b) Technological Advantage - What it took a first mover decades to achieve does not guarantee that a challenger will require an equal time lag to catch up.  

(c) Supply Chain Control — A sovereign nation does not have true sovereignty when critical resources are controlled by a competitor or an adversary. Commercial contracts will not be honored by “civilized” nations that trumpet governance by a “rule of law” when a nation is about to lose its competitive advantage. The world’s commerce is moving away from globalization toward high tariffs and trade barriers. But then, as traditional markets are closing, new opportunities also open up for those who are willing to take up the challenge.  

(d)  Artificial Intelligence — We are still very far from realizing AGI (“Artificial General Intelligence”) and are still at a stage of machine learning. Winner of the current AI race will be (i) open-source, open-weight models, (ii) local inferencing on desktop/laptops rather than data centers, and  (iii) consumer hardware using Unified Memory Architectures (UMA) that hosts AI models locally will outperform expensive VRAM in data centers. The threat and narrative of  inevitability and artificial superintelligence is pure financial hype to justify bubble valuation on Wall Street. For those who move on to embrace AI will find it is more helpful in jobs than an exterminator of jobs.

(e) Reserve Currency — Currencies will continue to be useful for trade settlement, but it has proven that it has lost its function as a store of value and therefore is no longer useful as a reserve,

(f) Transit Choke Points - Geo-logistical choke points are more powerful than nuclear weapons. (Fig. 8)

We are in the fourth turning, and therefore we are compelled by external circumstances to move out of our comfort zone or traditional orthodox thinking. A comfort zone may be a place, a lifestyle, or a familiar routine. I would like to close here with a story you are all familiar with: Two friends walk in the woods and see a huge bear. One friend quickly sits down to put on his running shoes. The other friend says, "You cannot outrun that bear!" The smart friend smiles and says, "I do not need to outrun the bear. I only need to outrun you." (Fig. 9)

Matthew 7:7  "Ask, and it will be given to you; seek, and you will find; knock, and it will be opened to you. 8  For everyone who asks receives, and he who seeks finds, and to him who knocks it will be opened. 9  Or what man is there among you who, if his son asks for bread, will give him a stone? 10  Or if he asks for a fish, will he give him a serpent? 11  If you then, being evil, know how to give good gifts to your children, how much more will your Father who is in heaven give good things to those who ask Him! 

Full Spectrum Competition

The week ended on July 31, 2026, interesting news items to look at for the past fortnight are:

Full Spectrum Competition: I borrow the title of the current Blog from “full spectrum dominance.” Full-spectrum dominance is a military strategic concept created in the United States during the 1990s (prominently featured in US military publications like Joint Vision 2010 and 2020). It is used to describe the achievement of absolute control over all dimensions of a battlespace—including land, air, sea, space, cyberspace, and the electromagnetic spectrum—so that an opposing force has total constraint and cannot effectively resist. (Fig. 1).

Now, if the US population, which constitutes 4.2% of the global population, wants to sit on top of the other 95.8% in perpetuity, they are either delusional or living in a man-made Matrix. The race for multipolarity has been on since 2010 and it looks like that after one and a half decades, we are at the finishing line in 2026.  

It has been said that there are 3 pillars that support the US Empire, viz: the US economy, the USD as the Global Reserve Currency, and the US military. It was not brilliance in design or execution that gave the US its superpower status; it all fell into her lap after Europe and Asia tore themselves to pieces as a result of WWII. The surprise was not the U.S. achieved superpower; the surprise was how the U.S. achieved it with so little cost and effort to itself. Contrary, if there was any single factor that caused U.S hegemony to lose its potency, I would ascribe that single factor to the fallacy of the doctrine of “Full Spectrum Dominance” and it was all self-inflicted. My thesis is based on three decades of observation of how, every time a particular aspect of US dominance faces competition, the entire US system is re-calibrated to eliminate a particular competitor, but in the process it weakens the empire as a whole.

Our thesis began with post-WWII competition between NATO and the Warsaw Pact. The US and the Soviet Union were shoulder to shoulder in terms of technology and military sophistication, and the Cold War lasted 45 years. To maintain the cohesion of the respective bloc, Russia directly subsidized the Warsaw Pact members, but the US had the advantage of the USD and indirectly subsidized Europe through trade deficits and shouldered NATO defenses single-handedly. In the end, the Soviet Union collapsed in 1990 but before that, the US defaulted on the Bretton Woods Agreement in 1971 and built USD hegemony on an unstable foundation in the Middle East in terms of the petrodollar.

The petrodollar, while it worked as an important anchor for dollar hegemony, comes with a huge cost in the sense that the US had to widely distribute dollars internationally through trade deficits (Fig. 2)

and pay record-high interests to stabilize the initial default volatility. (Fig. 3).

As a result, claims by foreigners against the US economy are a whopping $35 trillion, comprising $15 trillion in bank credits and $20 trillion in financial assets of treasuries, bonds, and equity. This compares with the US M2 of $22 trillion, and 40% of bank-created US dollars are outside the United States. Hence, dollar hegemony is both a strength and a deadly vulnerability. Sadly, successive US administrations only see the dollar as a weapon of threat and coercion, but were blinded by hubris to see the dollar as a double-edged sword that, when wielded, cuts both ways.

US is a country endowed with rich resources and naturally protected by the vast Atlantic and Pacific Oceans. In terms of oil and gas, US was the predominant supplier to both sides of the WWII conflict in the 1940s. (Fig. 4).

In fact, the primary cause of the Pearl Harbour attack was a U.S. oil embargo against Japan. However, by 1949, having exhausted its endowed good fortune of oil and gas and greatly profited from the vast WWII demand, the US became a net importer and eventually the biggest buyer of Middle East oil, and hence was able to seal the petrodollar deal in 1971. Few people knew that the petrodollar deal was not so simple as an exchange of oil pricing in USD against US security protection of the House of Saud.  Embedded in the deal was the Saudis would receive partial payment in gold and a scheme to maintain the international gold price at around US$400/oz for the Sauds to convert USD to gold as they received the dollar payments. To back up the scheme, the U.S. Treasury leased out its gold reserves to bullion banks and dumped them in open markets to depress the gold price (a mirror reflection to strengthen the dollar) for cash. The lease rates to bullion banks were around 25 to 50 basis points, and the bullion banks would lend to gold miners at preferential interest rates at 500 to 700 basis points. but repayable by gold miners in gold. This was the genesis of the gold carry trade. Naturally, Wall Street bullion banks would market the gold carry trade and borrow substantial quantities from the European Central Banks. (Fig. 5).  

You can see from the chart between the early 1980s and the mid 1990s, the gold price stayed depressed for 15 years, irrespective of volatility in inflation and interest rates. One also notes that, since 1974, the U.S. gold reserves have not been formally audited for over 50 years. This is despite US domestic political cries for a formal audit and a request by client central banks for inspection.

Whilst the exchange value of USD is being artificially propped up by the gold carry trade, Japanese exports to the US went on a tear. In 1985, US, the United Kingdom, France, and Germany united against Japan and,, in the Plaza Accord and forced Japan to revalue the yen FX rate from 240 to 150 within 12 months. In 1986 and 1987 US also took major trade and legislative action against Toshiba and robbed the crown of semiconductor manufacturing. It was at that time that South Korea, Taiwan, Hong Kong, and Singapore (the four Asian Tigers) were raised to weaken Japan for coming too close as a rivary to US.

1986 was also the year when Western financial markets threw away their prudential rule book. First began with the London financial market “Big Bang”, exotic trading practices like computerized algo trading, portfolio insurance, index and derivative trading have all significantly enhanced stock market liquidity but increased volatility. Back in Japan, your average Mr Watanabe is unaware of the undercurrents in the global financial markets and only saw a robust Japanese economy, new-found purchasing power in the Yen and low returns on cash savings. He could hardly resist the Nikkei 225 index, which rose from 10,824 in 1986 to a high of 38,915 towards the end of 1989 being window-dressed by a secret army of state-sponsored economic hitmen. After all, the Western caimans have honed their skills since Black Friday, October 19, 1987 and have sharpened their stealthy daggers in cloaks against the naive Japanese. MOF officials with inflated egos have also scant knowledge of this new financial weapon of mass destruction. So, for an exuberant party of three years, Japan woke up and found itself shackled as a financial serf of the US for the next 30 years. The Gold Carry Trade was officially replaced by the Yen Carry Trade. Here I need to digress and mention that today Samsung and SK hynix of South Korea, and possibly TSMC of Taiwan, will meet the same fate as Toshiba of Japan; history is repeating itself right before our eyes.

In 1991, the Soviet Union finally collapsed. The coffers of US hegemony were filled to the brim after shorting the ruble and harvesting $1 trillion in blood money. Japan also bent the knee and opened her vault and backed US with a platinum credit card of virtually unlimited credit. US, the last superpower, remained standing and self-crowned itself Master of the Universe. Yes, the financial weapon of mass destruction has outgunned even the Soviet’s huge arsenal of nuclear bombs. It is only fitting that the United States should be honored with full-spectrum dominance and a US rule-based international order.  With such victories, US turned its attention to the Middle East and Europe. How dare Saddam Hussein claim the promised reward for waging an eight-year war with Iran by actually invading Kuwait. What about the ambition of the Europeans in forming an economic bloc to rival the United States? And so the cycle of perpetual wars began with Operation Desert Shield, Operation Desert Storm (Iraq), Operation El Dorado Canyon (Libya), Operation Deliberate Force, Operation Noble Anvill (Yugoslavia), Operation Enduring Freedom (Afghanistan), Operation Iraqi Freedom, and Operation Inherent Resolve (ISIS).

So after two decades of war and $6 trillion of military expenditure, the Treasury coffers are drained; the Shiite majority in Iraq became close friends with Iran, and the US had to evacuate in haste from Afghanistan. Libya and Syria degenerated into failed states. In the meantime, without specific state-sponsored national targets such as the Soviet Union and Japan, the cohorts of economic hit men turned their weapons to Asia and Russia again. In Hong Kong 1998, Soros had his Waterloo moment. Soro’s Quantum Fund was forced to cover its naked short position because the Hong Kong Government bought every sell order thrown at it. (Fig. 6).

In Europe, LTCM blew up and needed a bailout coordinated by the Fed with successive Fed rate cuts. But the curse of wielding this financial weapon was brought ashore to the USA and caused havoc in the 2000 dot-com bubble and the 2008 sub-prime tsunami.

2008 was a pivotal moment and a wake-up call for foreign holders of USD and Treasuries. Fast forward to today, every attempt by the US Administration to dictate exclusive USD settlement, whether the end product is petroleum, minerals, semiconductors, or artificial intelligence tokens, is challenged by BRICS with viable alternatives. No longer is USD the currency of the United States, but another country’s problem. The spendthrift behavior of the US Administration will only be shouldered by US citizenry. The Federal Reserve printing press would guarantee domestic US inflation and the erosion of USD purchasing power. Full Spectrum Dominance is now Full Spectrum Competition. The table has turned, and the borrower now rightfully stands subservient to the lender. (Fig. 7)

Proverbs 22:7  The rich rules over the poor, And the borrower is servant to the lender. 8  He who sows iniquity will reap sorrow, And the rod of his anger will fail.

 

Words Matters

The week ended on July 17, 2026, interesting news items to look at for the past fortnight are:

Words Matters: There is a saying by Confucius “一言兴邦,一言喪邦” which can be translated as, “A single remark can revitalize a state; a single remark can ruin a state.” (Fig. 1).

"A wise leader speaks with humility and welcomes honest counsel—then the nation prospers. An arrogant leader who shuts out dissent when wrong leads the nation toward ruin."

Trump and his team, of course, do not necessarily know the words of Confucius, but as a collective group that tried to appeal to US evangelical Christians, they are certainly far from the wisdom of the Bible. (Fig. 2).

For readers of this Blog, I have been quite upfront about my personal worldview and convictions. And the foregoing words of wisdom will be a well-oiled lamp that guides our path in the coming period of darkness and instability. To know what lies ahead, we need to examine what was said.

1. Strait of Hormuz Conflict - On April 20^th 2026 Trump stated: “We're going to hit them extremely hard over the next two to three weeks. We're going to bring them back to the Stone Age, where they belong." (Fig. 3). 

These words totally decimated whatever residual pro-American interests remained in Iran and hardened the resolve of Iranians to prevail over all and every Zionists’ threat.

On July 13, Trump posted on his Truth Social about a 20% American protection extortion levy on Hormuz traffic. (Fig. 4).

This was retracted the following day. How do you think the international community would react? (Fig. 5).

World opinion has already been formed by two memes, with the center of power shifted to BRICS. (Fig. 6).

I guess you all know the answer to yet another Trump threat to destroy all Iranian civilian infrastructure (Fig. 7).

The reality is that Iran’s tit for tat would be to enforce a blockade against the Red Sea by the Houthis at Bab el-Mandab, and the world will make Trump answerable for an all-critical 19% of ME oil lifeline that did not go through Hormuz. (Fig. 8).

I am therefore not concerned and will be relaxing this weekend with Mexican delights of TACO and NACHO.

2. Artificial Intelligence - I guess I am out by two weeks regarding the stock performance of Space X IPO. I gave SPCX two weeks, and it would fall below the IPO price. SPCX did that with 23 trading days. (Fig. 9).

As a one year old grandpa, I am fascinated by infant brain development and derive tremendous pleasure watching my granddaughter grow.  Inadvertently, I also became extremely skeptical of the Wall Street and Silicon Valley hype of LLMs. Input through GPU, LLMs are essentially high-speed probability pattern recognition guesswork rather than intelligence in the true human linguistic sense. The American narrative is that it got some exclusive claims on a portion of high-density chip technology, printable money to buy HBM (Ultra-High Bandwidth Memory), and therefore should dominate the AI ecosystem to the exclusion of everyone.  To my utter amazement, there is also this cult-like belief among the Mag 7 that an AI singularity will occur imminently. When that occurs, the first innovator will go through a cycles of runaway recursive self-improvement upgrades, achieve omnipotence, and then can dictate all humanity. With this obsession, immensely profitable tech titans are all spending money without caution on GPU, HBM and related R&D infrastructure to be the first achievers. I will give more details on their finances later, but first let us deal with a few known facts about human brain development, as after all, AI is fashioned after a human neural network.

(i) The Neural Network - Artificial Neural Networks (ANNs) were inspired by human brains. While human brains are complex, energy-efficient biological organs capable of continuous learning, ANNs are rigid mathematical models designed to process vast amounts of digital data to perform highly specific, singular tasks. (Fig. 10).

GPT-4 was trained simultaneously on approximately 25,000 NVIDIA A100 GPUs, while frontier models currently employ clusters of 100k+ NVIDIA Hopper or Blackwell GPUs. By comparison, the human brain has an estimated 86 billion biological neurons connected by trillions of synapses that communicate using both electrical and chemical signals. ANNs consist of a much smaller number of artificial neurons—mathematical nodes—arranged in strict layers (input, hidden, and output). The interconnections between GPU and HBM in AI language are called “parameters” and apparently the larger the number of parameters, the more powerful the “brain power” of AI. Now let’s take a look at the top of the-line LLms and compare them to a newborn baby. (Fig. 11).

A newborn baby has 5X the current top AI. Yet, despite the large number of synapses in the baby’s brain, the baby cannot tell the difference between a banana and a banana-shaped animal wastee unless the baby is trained. Bear in mind, the lessons a baby will learn is much more than visuals through a GPU but also through smell, touch, and other senses. It also depends on the human trainer, and so does AI.

(ii) Human Brain Development - From the 50 trillion synapses, a baby neural connections will grow to 1000 trillion by 3 years old before natural pruning sets in to stabilize the number of neural connections to 100 trillion. (Fig. 12).  

Synaptic pruning is the brain's way of refining itself to become more efficient. By eliminating excess or unused connections while strengthening frequently used ones, it optimizes cognitive function, reduces energy consumption, and improves the brain's ability to adapt and learn. AI although it mimics the human neural network, has no knowledge, provisions, or plans for pruning, and my expectation is that cyber weeds will grow and the drainage will clutter before humility sets in for the elites to appreciate they cannot build God in a box.

(iii) The Hard Numbers: Since 2024, the term Mag 7 has been sarcastically changed to Lag 7 because of their under performance relative to the general stock market. I have compiled a combined free cashflow chart of the hyperscalers (Microsoft, Google, Amazon, Meta and Oracle) plus Open AI, Anthropic and Space X. (AI Generated - Fig. 13).

If we just concentrate on the thick black line, the combined free cash flow (Operating cash flow minus Capex) has decidedly turned negative in 2026 and will further deteriorate in 2027. There are two separate danger signals in the horizon: -

(a) US AI service providers have found that their revenue growth is much slower than their Capex. Adoption numbers are impressive when AI is free or at a highly subsidized rate. This is a different story once the AI service providers begin to charge on a token usage basis. Enterprise users like Coinbase, DoorDash, Airbnb and Seimens immediately switched to China-based AI service providers when Chinese AI are open-sourced and charges were at a tiny fraction of what US providers charged. (Fig. 14 shows a global ranking by their most recent token usage).

(Fig. 15 shows this ranking by the cost per million token usage). A survey concluded in July 2026 showed that 80% of US AI Startups switched to Chinese Models. (Fig. 15).

(b) The second risks factor on US AI sector is their circular financing arrangement. OpenAI’s revenue grew from $2 billion in 2023 to $20 billion in 2025. Anthropic’s annualized revenue run rate surged from $87 million in January 2024 to $30 billion by April 2026, a trajectory that Salesforce took 20 years to achieve. NVIDIA’s revenue grew eightfold from $27 billion to over $216 billion between 2023 and 2026, achieving that growth in just one-third of the time it took Apple to do so during its heyday between 2007 and 2015. By nearly every reported metric, the AI market is delivering growth at a scale and speed that defies historical comparison. Yet a narrative has emerged about how much of that growth reflects genuine market demand and how much reflects the circular financing structures that have become a defining feature of AI infrastructure investment. Circular financing in AI describes investment structures where the same capital flows simultaneously as vendor payment and equity stake. A company funds its own customer’s revenue while also supplying that customer’s core infrastructure. The result is reported revenue growth that is real but not cleanly separable from investment activity. The answer matters enormously, not just for investors in AI infrastructure companies, but for every enterprise software vendor and technology buyer trying to make sense of what’s actually happening in the market. The telltale sign shows up when profit growth of these AI-related companies is derived not from operating income but other income, meaning valuation gains from their investment activities. (Fig. 16).

Their books are not clean, and Open AI has already delayed its IPO and Anthropic is planned to cash out in Oct 2026. The AI bubble when it burst will be worse than the subprime fiasco in 2008 because the excess valuation in this caper is a whopping $10 trillion. AI related stocks currently account for nearly 50% of S&P. The contagion will be ugly.(Fig. 17)

Genesis 11:1  Now the whole earth had one language and one speech.2  And it came to pass, as they journeyed from the east, that they found a plain in the land of Shinar, and they dwelt there. 3  Then they said to one another, "Come, let us make bricks and bake them thoroughly." They had brick for stone, and they had asphalt for mortar. 4  And they said, "Come, let us build ourselves a city, and a tower whose top is in the heavens; let us make a name for ourselves, lest we be scattered abroad over the face of the whole earth." 5  But the LORD came down to see the city and the tower which the sons of men had built. 6  And the LORD said, "Indeed the people are one and they all have one language, and this is what they begin to do; now nothing that they propose to do will be withheld from them. 7  Come, let Us go down and there confuse their language, that they may not understand one another's speech."8  So the LORD scattered them abroad from there over the face of all the earth, and they ceased building the city. 9  Therefore its name is called Babel, because there the LORD confused the language of all the earth; and from there the LORD scattered them abroad over the face of all the earth.