Fathers and Sons

Notes on a world in conflict

It’s interesting how people are conditioned to inherently recoil from certain perspectives. I consider financial analysis a form (of the best) fiction, and while that twists the data types’ brains into knots, it’s probably the best way to make sense out of a tangibly nonsensical world. But, when the discussion veers into history, something we know is slanted in favor of who survived to tell the story, all of a sudden there must be a “right answer” here, and considering alternatives puts us back at square one with the “source, please” crowd.

“What is Bazarov?” Arkady smiled. “Would you like me to tell you, uncle, what he really is?”

“Please do, nephew.”

“He is a nihilist!”…

“A nihilist,” said Nikolai Petrovich. “That comes from the Latin nihil, nothing,as far as I can judge; the word must mean a man who … who recognizes nothing?”

“Say — who respects nothing,” interposed Pavel Petrovich and lowered his knife with the butter on it.

“Who regards everything from the critical point of view,” said Arkady.

“Isn’t that exactly the same thing?” asked Pavel Petrovich.

“No, it’s not the same thing. A nihilist is a person who does not bow down to any authority, who does not accept any principle on faith, however much that principle may be revered.

While the credentialed world plays moralist jenga assigning “good” and “bad” sides to each conflict that has ever erupted, I tend to view things agnostically — when your pot of gold runs out, you start a war to take someone else’s (bringing a bizarrely apropos interpretation of “despot” to the table.)

Intuitively, we can derive the primary purpose of modern law from this hypothetical: it’s about property rights first and foremost. Law primarily exists to settle property disputes so that people with resources do not mobilize them to war over said property. Criminal law, on the other hand, exists as a sort of societal insurance — for egregious misconduct, alright, one loses their privilege to participate in society (as long as these laws are enforced)…

Civil law could be considered a “gentleman’s game”, a settlement of higher order disputes between entities attempting to grow the pot, while criminal law could be considered “the trenches” by this reading, where ignominious acts are scrutinized. An oft-repeated principle of mine goes

“subsidized artificially low cost of capital causes serious risk transferral externalities”: while negative rates and fiat currency theoretically work out just fine, the basis of the financial system is “let’s just have it work this way” at its core. If people stop believing that financial products account for risk properly, the quantification of risk is immaterial.

To keep the faith in the financial system post-2008, where it definitively broke, the concept of “zero interest rates” was derived to bail everyone and everything out, but that is decidedly an absurd delusion to force upon everyone:

“Finance” is the practice of pricing and allocating risk through the movement of capital and reorganizing exposure to those movements and what it creates…

I’ve talked a lot about interest rates — a lot — but I guess it’s important to know what an interest rate is, considering nobody involved in current events seems to understand it:

an interest rate is compensation for the risk on loaned capital.

Much like the intermediate value theorem, this is intuitively really simple to grasp but the implications are profound, namely that every act of lending, direct or indirect, innately contains some risk.

Where was the risk transferred? Well, rather than pricing in capital risk, it was shifted to a kind of ontological burden on society as a whole — that, if anyone looked too closely at what ZIRP implied, the purpose of the financial system writ large made less and less sense. To put it another way, a “nihilism outbreak” amongst the population would cause chaos writ large in an unpredictable manner.

By this telling, finance is a derivative, a reflection on an amalgam of society as a whole. “Past performance does not predict future returns” is an acknowledgement that, while things may have appeared one way for lengthy amounts of time, it can actually play out otherwise. So, when something truly breaks, it won’t be from the financial system itself, thanks to central banks, but the consequences will inevitably be realized in the old relationships breaking down.

If 2008 broke the financial system in the US, 2020 broke the legal system.

What I realized is that the “trick” that kickstarts liquidity in a belief-based system (fiat) is the fact that you have to get people to believe in it. If I endlessly point out how everything is constructed around an assumption, and continuously harangue the point that “it’s not real”, it becomes a self-fulfilling reality if my ideas hit critical mass.

Law is, of course, a belief-based system — rule of law doesn’t exist when there is a genuine competition for power:

On Current Events (~7/18-20/24):

When idiots go flight or flight mode, it results in bodycam footage (warning: graphic content).

When millionaires are in fight or flight, it results in political instability. A signal of Eastern bloc instability is when ultra wealthy people start randomly dying — a particularly noteworthy one to me was the “sausage billionaire” being executed in his sauna by a crossbow. I started to expect something major to happen after, and of course, Russia invaded Ukraine. Rich people war over their respective pots when there’s no wealth creation — the domestic instability resulted in another pot being sought out. (Oddly enough, 2 years later, another Russian sausage billionaire died after falling out of a window in India, the Moscow special. I guess they knew too much about how it was being made.)

I’m not sure what form the American millionaire battle will take. The amount of interparty vitriol leaking out to the media is already a bad sign, and depending on how nasty the argument over the nominee gets, you’ll get a good idea of the overall temperature. I’m pretty sure it’ll happen through courts, though, similar to how NY tried to “get” Trump (See: Trading in the Age of Meaninglessness, 3/25/24). Too much can be manipulated in the court system for jurisdiction purposes. (Consider the case of Douglass Mackey, one of the most egregious 1a social media cases I’ve seen.) Nobody ever argued that America isn’t a litigious society first and foremost. There is so much bad blood at this point that I’d be very surprised if things just quieted down after November, especially if Trump wins (as I predicted my 2023 Year-In-Review post, with some conditions.)

The downfall of the legal system started with the extreme scrutiny of the criminal system in 2020, a decidedly nonsensical world where, to paraphrase our current Secretary of State, let’s dispell this fiction that there’s any sort of organic debate as to what happens in newsworthy cases. They know exactly what they’re doing, there is no right or wrong interpretation of flash-in-the-pan situations. It’s designed to engineer conflict and rancor, because the concept of “innocent until proven guilty” is the legal “trick” to get people to buy in. A more accurate framing, of course, comes from Denzel Washington — “it’s not what you know, it’s what you can prove.”

It’s a good thing I didn’t pass the bar, because a fundamental belief of mine is that you don’t really ever get charged with crimes if you’re truly innocent. (And I truly believe the popularity of true crime content is ruining the last vestiges of the system.) It’s like speeding — nobody gets caught for breaking the law once. But it’s not what you know, it’s what you can prove, so you take what you can get when you catch a serial violator.

In the civil game, Coasean bargaining generally pushes the outcome to the path of least resistance, a convenient fiction between the parties because litigating further would lead to capital destruction. In the criminal game, there’s no way to price the concepts of freedom, retribution, and justice — as soon as the illusion of fairness breaks, there’s no way to put it back together. To lock down society and ticket people for breaking “the rules” of social distancing is, if I’m being generous, arbitrary, but derived from a sense of fairness — to allow rampant property destruction and mass mobilization through right of assembly and immediately contradicting the guidance enforced prior is to plunge society into chaos. Every single person capable of framing things in two-step logical scenarios can put together how none of this made sense, and as soon as the algorithm multiplies the frequency of instances push-notification’d to people’s phones, it’s hopeless to try and maintain the fiction. As a result, every single human-derived instance of rules-based order must undo itself — the old story doesn’t work, there needs to be a new fiction enforced to keep the peace.

The only way to enforce a narrative is to pay people off. Any internet anon could clearly grasp that Joe Biden was borderline senile in 2020 and the “basement campaign” cover-up of his health was an operation, so when he won the oddest election in American history, some compensation was due to keep the fiction going a bit longer:

It took a global pandemic to induce trading volume again, and my dumbest conspiracy about COVID is that that was the plan all along — markets got too passive, and all the infra was fiscally unsustainable, so what do you do? Lock everyone inside, give them paychecks they didn’t earn, and get them hooked on trading.

What happened in 2021?

The fascinating part is not the short squeeze itself, but that it appears to be entirely retail driven. I have written before how “if everyone trading a stock disregards the ‘signal’ part entirely, the noise and pure price action really is the signal”, but what seems to be happening here is coordinated retail demand to blow out the short sellers:

I have truly never seen anything like this. Pump-and-dump and every form of retail manipulation has existed long before the internet (you're supposed to push Webistix) but, to re-emphasize, coordinated retail demand targeting shorts and actually pulling it off is something else entirely. When you have a battalion of spread-insensitive traders, each time someone crosses the spread, the price gets pushed higher and the naked short seller hurts that much more and creeps closer to flattening their position or getting margin called.

What I wrote about with incredulity all thoose years ago can only be explained through a nihilistic interpretation — handed a bunch of money for no reason, humans started to wonder whether “market capitalization” even made sense as a concept regarding future cash flows. When money is not earned, it is exchanged wantonly — a desire to make it through trading, rather than investing, is definitionally a lack of belief in the future, a liquidity suck that prioritizes the bird in your wallet over the two in the bush, which is why I call myself a cynic instead.

Inherent in every deeply cynical individual like myself is a startlingly clear-eyed optimism, in that I do think there is a way to fix these horribly broken systems people see glimpses of all over the place.

To maintain this fiction that there was, indeed, a functioning president in the White House, the only outcome to “keep the peace” was to pay everyone off until a new leader could be installed. As a result, the 2024 election was the last election, the dying gasp of whether the general population could ever have a say in federal politics again, an indicator of whether everyone young would rather be governed by morons in high places, or whether they’d rather burn it down. But I’m getting ahead of myself…

It’s not a coincidence that I brought up Turgenev, because I don’t think there’s any other historical populace that has nihilism so deeply ingrained into its psyche as modern-day Russia, and he borderline coined the modern term. While the term is commonly assigned a relentlessly negative polarity, I’d call the most prevalent strain as presented in Russian literature as, “such is life”. By assuming no greater meaning, one is imbued with a shocking ability to make real-time decisions — and, due to how the next iteration of government spying was justified, Russia was cut off from the global payoff to please, pretty please, maintain world order. On February 24, 2022, I realized that I had severely miscalculated the effects of the oil demand dropoff of 2020 as they invaded Ukraine. A utilitarian with power creates guaranteed destruction of life, but a nihilist with power creates extreme levels of uncertainty — I am confident that, so early into Biden’s term, nobody had a clear idea of what was going on in the White House. There was no way to tell whether there was a singular decision maker or a committee, because push had not yet come to shove — the only interpretation I have of this event was a gamble based on the same information I trade from, internet rumor. The thing about propaganda is that the term itself is recursive — all information narratives are a form of propaganda, so if you confine yourself to interpreting the one that comforts you best, inevitably, you will incorrectly interpret the state of affairs.

A question I frequently ask people is whether they believe in coincidences, because I don’t. Definitionally, this prevents me from being a nihilist, and I think that’s where a lot of my prognostication ability comes from — of course, I believe most people are stupid, incompetent, irrational, whatever, but I don’t think they act meaninglessly. Thus, we arrive at the “trick” that makes economics work, and why I disagree with their interpretations relentessly — the myth of the rational actor.

Until the math question as defined above is resolved, I don’t think there’s a way to tell if there’s truly such a thing as rationalism, which we can define as logical output while facing randomness.

I fully believe that the US knew of the potential invasion and intended to engineer a conflict along the Ukrainian border, but the timing was simply earlier than expected. Dare I say, too much of the West buys its own propaganda regarding Russia:

I’m not going to cite sources as to why I believe this — it’s a function of having been around this culture for my entire childhood through chess, math, music, and from beginning to read Gogol at the age of 11. A core facet of English literature, and therefore Western thought, is the constructs of “good” and “bad”, right and wrong. Such distinctions are meaningless in a nihilist framework, where everything must be taken as is. The US fundamentally will never be compatible with Russia as a result — even in this miserable state of affairs, it’s an exceedingly idealist (and, dare I say, dumber) society. The capital story won out over the socialist story because selling hope to individuals is a more sustainable way to run a society than collectively distributing misery, but the Soviet capacity for handling suffering is probably 10 times that of the American, as is their capacity to keep their mouths shut and not incessantly point out the obvious lie again and again. Yes, it is very obvious that all of the media is fake in the US — no, you do not need to film another 4 hour Daily Wire podcast pointing it out. There’s enough content, it’s time to think deeply about how things will proceed.

As soon as I started to see the news machine spin Ukraine and Russia into a Star Wars framework, I knew the world was about to re-align — I just didn’t know quite when.

A function of excessive luxury is that people become lazy, and there’s no greater evidence of this than the broad illiteracy of the American population, even (especially) amongst the credentialed. Russian grade-schoolers read Tolstoy, and we have Disney adults. On October 7, 2023, I became certain the world would re-align, because the “trick” that maintained peace in the post-WW2 world was about to become heavily scrutinized.

The story taught in American schools about World War 2 is one of the Western allies triumphing over the evils of Nazi Germany, having been inspired to act due to the atrocities committed during the Holocaust. To be clear, I think this is a good simplification for your median grade schooler — there isn’t much depth of thought in public, standardized education anyway. But after I read White Noise in high school, I got the sense that from an academic sense, this was a very modern theory enforced by American tech companies as they gained more and more economic control over the world.

White Noise is a novel by Don Delillo from the 1980s that probably turned me into a postmodernist. (You might recognize this book as the source of this passage I frequently cite in my own posts):

We drove twenty-two miles into the country around Farmington. There were meadows and apple orchards. White fences trailed through the rolling fields. Soon the signs started appearing. THE MOST PHOTOGRAPHED BARN IN AMERICA. We counted five signs before we reached the site. There were forty cars and a tour bus in the makeshift lot. We walked along a cowpath to the slightly elevated spot set aside for viewing and photographing. All the people had cameras; some had tripods, telephoto lenses, filter kits. A man in a booth sold postcards and slides—pictures of the barn taken from the elevated spot. We stood near a grove of trees and watched the photographers. Murray maintained a prolonged silence, occasionally scrawling some notes in a little book.

"No one sees the barn," he said finally.

A long silence followed.

"Once you've seen the signs about the barn, it becomes impossible to see the barn." He fell silent once more…

What was the barn like before it was photographed?" he said. "What did it look like, how was it different from other barns, how was it similar to other barns? We can't answer these questions because we've read the. signs, seen the people snapping the pictures. We can't get outside the aura. We're part of the aura. We're here, we're now.”

One of his most famous works, it centers around a Professor of “Hitler Studies” at a small liberal arts college with the ironic twist that he speaks no German. In a sense, Delillo claims that academia is simply reactionary as to what they think will attract students — if you’ve ever read sell side research and dived into “price targets”, you realize that everything published about the past is by nature a lagging indicator, a nice bit of post-hoc rationalization. The “expert” is someone whose credentials can be sold to convey authority whether or not they can even interpret the source material directly; to call yourself an expert is to have mastered nothing at all.

The world does not go to war over a polite fiction. To this day, it’s not really clear what exactly started World War 1 — everyone has their own issues, and all that’s needed is some form of catalyst for the argument to start. Similarly, without an understanding of what the issues were during World War 2, a narrative cannot hold. It’s one thing when Kanye West goes manic and loses his Adidas contracts — it’s another when the Champagne Socialist children of the elite on Ivy campuses parrot the inverse of the official Western narrative.

It’s impossible to understand World War 2 without looking at the Bolshevik revolution, because the war was a violent debate over what was worse: rule by Nazis, or rule by Communists. Obviously, geography plays a huge part here — Western Europe undoubtedly took the side against their direct invaders, while the question wasn’t so clear in the Eastern bloc. Lost amidst the “gotcha” moments over the Azov battalion is that anyone with direct knowledge of how ludicrously violent the Bolshevik revolution was under the direct repression of the Stalinist regime would be drawn to alternatives, a picture that’s conveniently been painted over due to who fills the ranks of those institutions highlighted above.

In my head, you can split the major players of WW2 into idealists, cynics, and nihilists. It’s silly to say that anyone could see the West winning in advance — the entire reluctance of the US to enter the war stemmed from the fact that they didn’t want to pick the wrong side, and an actual understanding from the top that they didn’t understand the cultural backdrop of the war going on. But world war is a self-fulfilling prophecy in a way — when you have to run your country in survival mode, you find out what your economy is capable of. (“The only real economy is a wartime economy, so to speak.) And if you run at max capacity and win, you have a test case that anyone else who didn’t participate doesn’t. There was no way for an ascendant world power to not take a stake in the outcome. And thus, the official narrative developed as a result of who helped the U.S. (and, yes, the U.S. did win) win — the smartest group of people to ever assemble in one place, in a little-known happening called the Manhattan project.

(Originally, I wanted to write this in my post about Von Neumann, a personal hero of mine, but it seemed out of place. To this day, I consider Mutually Assured Destruction to be the most beautifully constructed equilibrium outcome, another delightful “trick” to keep the peace.)

The Nazis were obviously the cynics, believing that the issues with the world could be traced to explicit groups — this is distinctly how a belief that the answers were purely the applied world would realize itself. The Soviets, of course, were the nihilists — Stalin’s realignment was purely a function of taking a situation as it comes and making an assessment. And the Americans, as always, were idealists, by picking a side and betting on their wartime machine pushing technology to where it hadn’t gone before.

The debate about the “causes” of World War 2, therefore, are misguided, but the fiction cannot be enforced once the image has broken in people’s brains. Once again, we are going to have a debate as to whether idealism still wins after it has screwed people over for 17 years straight. In a sense, there isn’t really an American institution to believe in at the moment. While I was driving around Hokkaido in December, I stopped in a fishing town called Otaru, where I went through a couple of painfully slow Google Translate conversations with some endearing locals. The allure of America is ridiculously potent, as evidenced by the fact that I instantly became the most popular person at any restaurant I went to after mentioning that I saw that game 1 of the 2024 World Series. Similarly, in Sapporo, after dining at a late night ramen joint, the chef excitedly told me that one day, he wanted to move his stall to New York. I didn’t have the heart to tell him how much I despise current-day New York relative to what it was when I lived there, but it’s gratifying to see that the illusion hasn’t broken everywhere else in the world. When I travel abroad, I find myself rediscovering what I find so great about the US in the first place.

The player-characters may shift, but the ideas in conflict remain the same. The reason that the realignment of the world is necessary is, of course, due to China becoming a major world player. No matter how technologically inclined society gets, geography will always matter, and the re-emergence of Russia as enemy number 1 is the sign of a nation in conflict. You could consider the rationale of the post-2008 uniparty machine as “point our allies in the right direction” — you can also see why, when the unexpected king that bears the crown wants to try and reason with a nihilist that has been excommunicated from the global order, all the stops are pulled out, to the point where not one, but two assassination attempts from the 2024 election have been memoryholed.

The question to be debated revolves around AI and AGI, of course. I’ll ponder more on the “math question” in a later essay, but take a glance at this passage:

I like to think that we build tech as a reflection and extension of our own processes. For example, the split between RAM and storage is the difference between referential memory and rote memorization. As I outlined in Becoming One with the Machine,

It’s shockingly intuitive — why we can mimic AI systems in our own brain is precisely because whenever these AI systems are built, it's to incorporate how we interpret things currently to the best of our ability at the launch-point. Thus, generative text is an attempted version of coding, say, my own stream of consciousness ranting and single data point extrapolation ad infinitum. (Though I don’t need prompting, just the occasional redirect and hard stop.) Computer vision just attempts to generalize and harmonize the relationship between approximate and precise viewing and using compute to approximate the intuitive process as closely as possible (as AI problems scale with compute, not efficiency.) Even deep learning neural networks are based off of early-brain development “sponge brain” — after all, you learned your first language from scratch by immersing in it, didn’t you?

But I see something different happening with generative AI. It feels like we’ve very much lost the plot to even coherently process what this superpowered compute touching the theoretical limits of physics should be used for. There is no “defined input, verifiable output” framing of problems we are applying these models to. We are not attempting to recreate anything we can conceive of. Instead, we are throwing ever-increasing amounts of compute and data and “benchmarking” models as some sort of proof that progress has been made at scale beyond automating spam and listicles…

It all has a very Aztecan feel to it: we are incinerating compute and consuming electricity at a steadily increasing, probably unsustainable rate and praying to the silicon gods for a Coke bottle containing the AGI solution to reality to be produced from the machines sooner rather than later. The models may differ in name, size, structure, “safety design”, and more, but shouldn’t all of these models converge if an AGI truly does exist? The only difference is in path-dependency, which is quite terrifying if you think about it.

All of the battles fought to maintain American hegemony are being levered on a long-shot, low delta call option on whether the tech solution to finally answer whether or not reality is a defined space is finally here, and the most critical geographic location as to pursuing this answer is located right next to China. The very fabric of American idealism, which breeds ignorance, but also ingenuity, is being tested — is it even necessary to be creative when Multivac can solve everything for you? Look at where our systems of fiat and law got us — great innovations, of course, that created one of the most dynastic empires in history, but inevitably crumble as the world gets too complex for mere mortals to process the exponentially compounding amounts of information in the world. Should we just hand over control to Helios, and become servants of the automaton?

These are not questions which can be answered without conflict. There’s no simple resolution as to whether our existence is on a finite timeline or not. As such, inevitably, once the conflict starts, it draws everyone in. I am almost certain that by 2030, a hot conflict will erupt where the AI future must be fought over to maintain, in large part due to the extreme unsustainability of the current financial scheme to justify the expenditure being taken and the level of risk involved. My next canary in the coal mine is the inevitable collapse of OpenAI — you cannot so openly flaunt the powers that be that created the system we live in, fiscal reality and property rights must exist for society to remain structural — and the resulting mad dash to internalize the foundational model scheme. I like to joke that we have the “publicly traded CCP” in the biggest tech stocks, but it’s much truer than most would admit. There is no “competing” with civilization-scale tech companies that the entirety of the world has organized itself around. They were given over a decade of “free” money to scale to this size, but now something must be done that redistributes the gains to society in one form or another. We know the capital redistribution scheme does not work due to the cold war — but what if there was a programmatic intertwining of finance and law, where we’re no longer reliant on human-perpetuated fictions (as highlighted in Is Central Banking a Religion?) that a “Federal Reserve board” or a “Supreme Court” understand the world better than the collective human knowledge base transmitting at the speed of light through the network?

I’ll once again cite my “retirement” post as to what I’ve concluded is probably the only way to be optimistic about the future:

The past couple months have fully revealed who is a jaded nihilist and who is cynical. Inherent in every deeply cynical individual like myself is a startlingly clear-eyed optimism, in that I do think there is a way to fix these horribly broken systems people see glimpses of all over the place. I don’t have the energy to deal with depressed nihilists anymore, and taking the other side of their bets requires reading their idiotic thoughts over and over again to time the market. I do think It’s Different this time — we have the tech to push past the bounds of the faulty, spaghetti-code human operating system driven by people pulling levers they don’t understand the intuition behind.

The beauty of how the US leveraged its debt to control the world is that, in a sense, everyone needs the US to win in some form, else the capital basis of the world disappears. The more risk we take, the better an investment in American tech supremacy is. Another form of “Mutually Assured Destruction” is, There Is No Alternative (TINA). TINA won’t maintain in its current form — where we’re going, the dollar will not exist as it’s been instilled in our brains all these years — but the point of shooting for the stars is to land on the moon, and all the moonshots are housed in America for the time being. On the other side of the World War 3 order is a new realignment, one where Germany can be given its dignity back, and the cycle will start again.

Inevitable war can either be a nihilistic take or a cynical one. The nihilist take is that it’s the “war to end all wars”, but the cynical one is that “there is a reason to fight this out.” And the “startlingly clear-eyed optimism” in my head is the fact that men fundamentally don’t want to kill each other.

At the same time, a population must have something to believe in to fight in the first place. The current environment echoes much of the 90s media I grew up with — it’s delightful that “Tyler Durden” of ZeroHedge is the most accurate indicator as to the current schizophrenic state of markets, because that “end of the century” nihilism of Fight Club and the Sopranos leading to a hot war in the Middle East seems to be playing on repeat. A soldier must do what he is trained for, and every generation must have its war to impress their fathers, to show what they’re capable of. There’s no more money in sitting around and waiting for the tech to show us meaning — it’s not a coincidence that, as more and more of the Bay believes in a Silicon god, people are once again looking for meaning through their actions rather than others. “Such is life”, after all, is insufficient data for a meaningful answer.