Monopoly vs Equal Opportunity

The week ended on January 25, 2025, interesting news items to look at this week are:

1. Monopoly vs Equal Opportunity: One of the most talked-about subject this week was the launch of China’s AI App called DeepSeek V3 and R1, a $6 million investment which knocked valuation of the US Stock Market down by $1 trillion.  There are multiple facets to this story, the not so obvious ones are non technical in nature, so let’s us examine a few of these from a macro perspective:

(i) Elephant on a beach ball: The US Equity Market is approximately 65% of the entire Global Equity Market. In turn the Magnificent 7 (7 US Tech Giant Stocks) accounts for 35% of the entire US Equity Market Capitalization. One analyst described the skewed overvaluation and concentration of the US Stock Market as an Elephant balancing on a beach ball propped up by two ants called the Magnificent 7 Stocks. (Fig. 1)

There is no historical comparison of this absurd valuation and many pundits expect a major correction of US Stocks in 2025. Tesla’s market capitalization (P/E 56.02) is 7 times those of BYD (P/E 19.23) of China despite BYD is a bigger producer than Tesla. Meta(P/E 29)  is 5 times those of Bytedance (Owner of Tik Tok, P/E of 2). Amazon (P/E  77.35) is 7 times those of Alibaba  (P/E 10.86) despite Alibaba consistently ring up higher revenue than Amazon and so on. It is just a law of nature that when an area where temperature gets too high, a storm will come in as a mechanism for heat dissipation. The stock market must eventually obey natural laws.

(ii) Monopoly vs Equal Opportunity: In 2024, the combined market value increase of the Magnificent 7 was 63% on top on a 79% increase in 2023 and a 39.9% increase in 2022. In the intervening period Revenue increase for Apple was 2024 - 2.02%, 2023 - 2.8% and 2022 - 7.79%. It is obvious that the upshot in market cap is a quantum leap from actual economic performance. In financial markets, narrative follows the money. Market pundits saw a price momentum than create a narrative to explain the observed phenomenon. Before DeepSeek, the ongoing narrative for the hyper valuation of US Stocks was AI is the new engine for growth for the next 20 years and US has a monopoly.  I have tried to explain in previous Blogs that as BRICS dethroned the Petrol Dollar, US must find a unique product that will replace petroleum for exclusive trade and settlement denominated in USD. The AI GPU became that product and the Anglo American elites directed their excess liquidity from the Covid money printing into the AI GPU together with all the necessary spin. It is worthwhile to note prior to DeepSeek V3, Huawei had already successfully launched its Ascend 910C AI chipset, However, Huawei is a sanctioned entity and its impact on the international market are quarantined. The killer shot of DeepSeek is in its business model of open source codes and in one fell swoop opens AI to equal opportunity and  knocked US off its Monopolistic perch. DeepSeek is a seminal event not only on AI but on the entire US economy, Dollar Hegemony and the power structure of the West. Without the Dollar Hegemony, on pure economics and military power projection, the Empire can no longer dominate the rest of the world. Close to 30% of US Equity is owned by foreigners amounting to $18.5 trillion, the exodus from US Stocks when happen will be devastating. The launch of DeepSeek Janus-Pro-7B on 20^th January 2025 (Trump’s inauguration day) was precision timed for maximum impact.

(iii) Knowledge, Understanding and Wisdom: Nvidia High end GPU and Open AI excels in high speed consumption of a massive number of data point. However data itself is not intelligence. Choosing applicable data is understanding and DeepSeek is engineered to profitably trade off between volume of data for an acceptable outcome, hence the much lower cost and energy usage. Before DeepSeek, given an insatiable appetite for data for learning and a Dollar Hegemony to command capital for an AI Nuro-network infrastructure, it is the assumption of the Anglo American elites to comfortably ride the AI ticket for global dominance far into the future. But ask any high school student who have invested time on “How to Study”, it is not the volume of reading that will guarantee good marks. If we just list the top 10 learning techniques known to High School students (Fig. 2)

Algorithmic data processing is a fair way behind effective learning.  The OpenAI/ GPU concoction when compared with the human brain which only uses 20 watts of power is a clumsy monolith. The hype follows the money and currency (money) is an artificial construct and psychological warfare tool. Yes AI has its purpose but do not be fooled by just looking at price momentum.  Fool me once with the dotcom bubble  in 2000 but please don’t sucker me into a 35% loss from now to Sep 2006. (Fig. 3).

It took 16 years to recover from the peak of the Dotcom crash.

(iv) Cyber Attack on DeepSeek: Chinese tech startup DeepSeek says it was hit by large-scale malicious attacks. Yesterday, over 83 grueling hours, DeepSeek’s digital fortress reportedly faced a relentless cyber siege from an unknown but highly sophisticated adversary. The scale of the attack was extensive - 10,000+ phishing emails were sent to employees, attempting to steal credentials & 5,000 brute force attempts per second targeted DeepSeek’s servers, aiming to crack passwords and breach firewalls. 1.2 terabytes of malicious data were injected into the network, including ransomware and spyware. The attackers aimed to cripple DeepSeek’s operations, steal proprietary AI algorithms, and hold critical data for ransom. If successful, the attack could have caused $500 million in damages, including lost revenue, reputational harm, and recovery costs.

Over 1 million malicious IP addresses were blocked within the first 24 hours. DeepSeek’s own AI systems analyzed 10 million log entries to identify and isolate compromised nodes. Critical data was secured in offline backups, ensuring no ransom could be demanded.

After 83 hours, the attackers were forced to retreat. Zero data breaches were reported, and all systems were restored to full functionality. (Fig. 4)

2. Major Shifts in Financial Markets for the month December 31, 2024 to January 31, 2025.

(i) Key Financial Asset Category Performance: (Fig. 5) 

Ruble (+15.29%), Bitcoin (+8.98%), Silver (+8.35%), Gold (+6.63%), Copper (+6.34%), Dow (+4.65%), Oil (+2.58%), S&P500 (+2.52%), Nasdaq (+1.64%), Jpy (+1.30%), Rmb (0.67%), AUD (+0.30%), USD Index (+0.02%), Euro (+0.01%), GBP (-0.97%) and Uranium (-1.95%) .  The most significant impact is the tech stock correction from the launch of  DeepSeek. Energy linked commodities - Uranium and Copper were also marked down but Precious Metals advanced. JPY gain on interest rate hike but GBP is in trouble due to looming Debt Death Spiral. There were serious failure to deliver in LBMA as precious metals were repatriated back to US and other countries.

(ii) Short Term Interest Rates: The Fed ignored Trump’s call for an immediate rate cut but short term rates drifted 10 basis point lower after a maor stock market correction. (Fig. 6)

(iii) Duration Treasuries: Yield drifted lower by 6 to 8 basis points along with a decline in short term rates. (Fig. 7)

Isaiah 55:6  Seek the LORD while He may be found, Call upon Him while He is near. 7  Let the wicked forsake his way, And the unrighteous man his thoughts; Let him return to the LORD, And He will have mercy on him; And to our God, For He will abundantly pardon. 8  "For My thoughts are not your thoughts, Nor are your ways My ways," says the LORD. 9  "For as the heavens are higher than the earth, So are My ways higher than your ways, And My thoughts than your thoughts. 10  "For as the rain comes down, and the snow from heaven, And do not return there, But water the earth, And make it bring forth and bud, That it may give seed to the sower And bread to the eater, 11  So shall My word be that goes forth from My mouth; It shall not return to Me void, But it shall accomplish what I please, And it shall prosper in the thing for which I sent it.