Systemic Risk: A 12-Order Cascading Analysis Of A Zero-Flow Strait Of Hormuz Closure

Authored by Craig Tindale via X:

Executive Summary

The modern world order, having organized itself around efficiency, cost minimization, and logistical precision, has created a machinery of dependence so extreme that the interruption of one narrow corridor can propagate outward into a general crisis of civilization.

What appears at first as a maritime blockade is in fact the exposure of the entire global system as a hierarchy of brittle interdependencies.

Oil and LNG fail as inputs into electricity, fertilizer, shipping, chemicals, mining, manufacturing, and state finance.

As an example, The global polyester chain begins in petrochemicals. A severe disruption to hydrocarbon and petrochemical feedstocks cascades into PTA, MEG, polyester resin, filament, and fabric production, causing acute shortages, price spikes, and factory stoppages across synthetic-heavy apparel segments. The industry does not vanish overnight, but the low-cost, high-volume apparel model starts to break down.

From this follows a chain whose logic is cumulative: fuel inflation becomes fertilizer inflation; fertilizer inflation becomes food inflation; food inflation becomes urban instability, sovereign subsidy exhaustion, and ultimately hunger. In this sequence, food shortages are not a secondary humanitarian issue. They are one of the central political outcomes of the crisis, because modern populations do not experience systemic breakdown first through grand strategy, but through unaffordable bread, intermittent power, empty pharmacies, and possibly the collapse of public order. A globalised Arab Spring.

In this framework, hyperinflation emerges as the social expression of real physical bottlenecks. When energy-importing states are forced to acquire dollarized fuel at any price, when currencies weaken, when fertilizer and transport costs reprice an entire harvest cycle, inflation ceases to be cyclical and becomes coercive.

It enters every household budget and every state ledger at once. The result is the destruction of planning itself: firms cannot quote, governments cannot subsidize, and populations can no longer calculate the future. Under such conditions, credit markets seize up, foreign-exchange reserves drain, sovereign spreads widen, and the boundary between economic crisis and political crisis disappears.

Modern technical systems amplify rather than dampen this disorder. The loss of sour crude becomes a sulphur and sulphuric acid crisis; that chemical crisis becomes a copper and cobalt crisis; the metals crisis becomes a transformer, switchgear, and grid crisis; the grid crisis becomes a semiconductor crisis; and the semiconductor crisis becomes a compute and data-centre crisis.

Thus, the closure of a maritime strait reaches, by entirely material means, into the server rack, the hospital network, the payment system, the electrical substation, and the defence-industrial base. The myth that digital civilization floats above heavy industry is, in this scenario, extinguished. Compute is shown to rest on copper, transformers, stable voltage, LNG, and ships.

For humanity, the systemic risk is therefore total in scope even if uneven in distribution.

The most immediate suffering falls on import-dependent and fiscally weak societies: blackouts, food insecurity, unemployment, debt default, regime stress, and mass unrest. Yet the advanced economies do not escape. They experience industrial contraction, infrastructure delays, AI and semiconductor bottlenecks, strategic stockpiling, and the permanent repricing of security over efficiency. What begins as a supply shock ends as a transformation of the political economy. States abandon the fiction of neutral markets and move toward command allocation, export controls, emergency powers, and militarized trade corridors. Market price gives way to strategic rationing. Globalization does not simply slow; it hardens into armed blocs.

The ultimate conclusion is grim : the terminal danger in this model is not one shortage, nor one recession, nor even one war-risk premium.

It is the transition from a globally integrated commercial order into a world system governed by scarcity, coercion, and administrative triage.

In such a world, hunger, hyperinflation, sovereign failure, technological stagnation, and geopolitical militarization are not separate crises.

They are the normal operating features of a civilization that has discovered, too late, that its efficiency was built on concentrated fragility. The closure of Hormuz, under this analysis, is the event through which the modern world recognizes that its supply chains were never only economic structures, but the hidden constitution of social peace itself.

A multipolar world is a very complicated and dangerous world. As always, be careful what you wish for.

Such is the risk. The whole world will be compelled to support efforts to bring this situation under control immediately. China, the US, and Europe will have to work together.

The political cycle over the coming days and weeks is going to matter like never before.

Here are 10 likely and immediate crises

• Polyester -> apparel The global polyester chain begins in petrochemical feedstocks. If naphtha, paraxylene, PTA, or MEG are disrupted, polyester fiber, yarn, and fabric output contracts sharply, and synthetic-heavy apparel production starts seizing up. Chain: Petrochemicals -> PTA/MEG -> polyester -> fabric mills -> garment factories

• Natural gas -> fertilizer -> food The global nitrogen fertilizer chain begins with natural gas. If gas supply is disrupted, ammonia and urea production falls, farm input costs spike, and food systems come under pressure within a single planting cycle. Chain: Natural gas -> ammonia -> urea -> crop yields -> food prices

• Sour crude / sulfur -> sulfuric acid -> copper The copper and cobalt extraction chain depends on sulfuric acid, which in turn depends heavily on sulfur recovered from sour hydrocarbons and smelting. If sulfur or acid supply is disrupted, leaching operations stall and electrification inputs tighten fast. Chain: Sour crude/sulfur -> sulfuric acid -> SX-EW/HPAL -> copper/cobalt -> grids and EVs

• Propylene -> polypropylene -> medical and packaging The polypropylene chain begins in petrochemicals. If propylene supply is disrupted, packaging, medical disposables, and automotive plastics face shortages, forcing manufacturers to ration output or redesign products. Chain: Propylene -> polypropylene resin -> molded parts/films -> hospitals, food packaging, autos

• Salt + power -> chlorine / caustic soda -> water treatment The chlor-alkali chain begins with salt and electricity. If that system is disrupted, chlorine and caustic soda output drops, putting water treatment, sanitation, PVC, and pulp processing under immediate stress. Chain: Salt + electricity -> chlorine/caustic soda -> water treatment/PVC/paper

• Natural rubber + synthetic rubber -> tires -> freight The tire industry begins with natural and synthetic rubber. If either is severely disrupted, tire production contracts, replacement cycles stretch, and trucking fleets start operating under maintenance and logistics constraints. Chain: Rubber feedstocks -> tires -> trucking fleets -> freight movement -> retail supply

• Iron ore + metallurgical coal -> steel -> construction and machinery The steel chain begins with iron ore and metallurgical coal. If either feedstock is constrained, steel mills cut output, and construction, auto manufacturing, shipbuilding, and heavy machinery start absorbing delays and cost shocks. Chain: Iron ore + met coal -> steel -> beams, sheet, machinery -> construction/autos/industry

• Bauxite + alumina + cheap power -> aluminum -> transport and packaging The aluminum chain begins with bauxite, alumina refining, and very large amounts of electricity. If any of those are disrupted, smelting capacity drops and packaging, aerospace, transport, and power transmission all get hit. Chain: Bauxite -> alumina -> aluminum smelting -> cans, aircraft, cable, vehicle parts

• Soda ash + natural gas -> glass -> buildings, autos, solar The flat glass chain depends on soda ash, silica, and high-temperature continuous furnaces fed by stable energy. If those inputs are disrupted, glass production cannot be easily paused and restarted, and shortages hit construction, autos, and solar manufacturing. Chain: Soda ash + silica + gas -> float glass -> windows, windshields, solar panels

• High-purity gases and chemicals -> semiconductors -> electronics and autos The semiconductor chain begins with ultra-pure gases, photoresists, specialty chemicals, and stable power. If those inputs are disrupted, chip yields collapse, lead times extend, and electronics, autos, telecom, and defense manufacturing start choking on shortages. Chain: Neon/photoresists/ultra-pure chemicals + stable power -> wafers -> chips -> downstream manufacturing

Section 1: The Master Cascade, An Institutional Matrix

The systematic rationalization of global supply chains has constructed an extraordinary vulnerability.

The following matrix outlines the chronological and mechanical breakdown of the global system, from initial logistical paralysis to the ultimate civilizational redesign.

Caution - Remember, these are just my own thoughts and don't represent certainty. It's an extrapolation of what could happen, not what will. That said, it is a serious risk warning

• Order 1: Maritime Flow Interruption (0–14 Days)The mechanism is an logistical gridlock of approximately 20.9M bpd in liquids and 80 mtpa in LNG, operating against maximized bypass pipelines. The binding bottlenecks are the Saudi Petroline and UAE Habshan capacity limits, which offer a maximum of 2.8M to 3.1M bpd in spare diversion, alongside severe VLCC availability constraints. The leading indicators of this phase are prompt-month Brent crude backwardation, VLCC ton-mile rates exceeding $423k/day, and the instantaneous cancellation of P&I War Risk Insurance.

• Order 2: Refining & Industrial Chemicals (2–6 Weeks)The mechanism relies on the starvation of sour crude, yielding an immediate, unmitigable global deficit in elemental sulphur by-production. The physical bottlenecks are strict toxic transport limits, local refinery storage capacities, and concurrent Russian export bans. The leading indicators are domestic Chinese sulphuric acid pricing breaching 1000 yuan/ton and the abrupt halt of Qatari sulphur exports, removing 3.8M tpa from the market.

• Order 3: Mining & Metals Extraction (1–3 Months)The mechanism is a profound sulphuric acid famine that forces the halt of Solvent Extraction and Electrowinning (SX-EW) and High-Pressure Acid Leaching (HPAL) operations for copper and cobalt. The bottlenecks manifest in shallow regional acid inventory buffers and Zambian cross-border rail constraints. Leading indicators include formal force majeures declared across the DRC and Zambian copper belts, with spot acid prices in Kolwezi surging past $700/tonne.

• Order 4: Grids & Power Hardware (3–12 Months)The mechanism dictates that the copper deficit exacerbates an already chronic shortage of Large Power Transformers (LPTs) and high-voltage switchgear. The bottlenecks are the highly concentrated supply of GOES (Grain-Oriented Electrical Steel), inflexible vapor-phase drying limits, and extreme OEM lead times extending to 120–210 weeks. Leading indicators are Siemens Energy and Hitachi order backlogs swelling beyond €146B, accompanied by a surging Federal Reserve Transformer Price Index.

• Order 5: Semiconductor Supply Chains (11–30 Days)The mechanism involves Taiwanese LNG starvation triggering mandatory grid rationing, exposing fabrication equipment to catastrophic voltage sags. The bottlenecks are defined by Taiwan's statutory 11-day LNG reserve limit, strict SEMI F47 tool tolerance limits, and 28-week lead times for ABF substrates. Leading indicators include Taipower's percent operating reserve (POR) collapsing, skyrocketing TSMC wafer scrap rates, and extreme spot LNG premiums.

• Order 6: Compute & Data Centers (6–18 Months)The mechanism is the violent collision of silicon supply constraints with transformer unavailability, freezing GW-scale expansions entirely. The bottlenecks are a stagnant 2,600 GW US interconnection queue and interconnection wait times extending up to 7 years in PJM and Northern Virginia. Leading indicators are the public delays of AWS and NVIDIA capex deployments, alongside the structural pausing and cancellation of hyperscaler contracts.

• Order 7: Capital Markets & Credit (1–6 Months)The mechanism centers on material cost inflation driving severe margin compression, causing high-yield industrials to reprice violently. The bottlenecks are heavy industrial balance sheet leverage and the rapid draining of Emerging Market FX reserves required to secure dollarized energy. Leading indicators include Siemens Energy credit spreads widening past 300 bps, the KRW/USD exchange rate breaching 1460, and the INR hitting record lows.

• Order 8: State Response Layer (13–90 Days)The mechanism involves sovereign authorities enacting SPR drawdowns and utilizing the DPA, only to be subordinated by uncompromising pipe and cavern physics. The bottlenecks are the SPR's maximum daily hydraulic drawdown limit of 4.4M bpd and a strict 13-day lag for physical market entry. Leading indicators are US DOE spot-price indexed solicitation data and the issuance of federal mandates via the Defense Production Act.

• Order 9: Trade Architecture (1–3 Years)The mechanism is the multi-year restructuring of maritime supply lines, marked by the acceleration of Petroyuan usage as dollar liquidity drains from the system. The bottlenecks are absolute global shipbuilding capacity limits, with Asian yards fully booked into 2029, and the constraints of an aging VLCC fleet. Leading indicators are surging non-dollar energy settlement volumes, newbuild VLCC orders, and shipyard utilization rates.

• Order 10: Social Stability (6–12 Months)The mechanism traces extreme energy and fertilizer (ammonia/urea) inflation directly into structural food crises across Emerging Markets. The bottlenecks are the exhaustion of sovereign fiscal space and heavily import-reliant energy profiles in states like Egypt, Turkey, and Pakistan. Leading indicators include sovereign CDS spreads rupturing past 600 bps, formal EM debt defaults, and emergency IMF Extended Fund Facility interventions.

• Order 11: Industrial Structure Shifts (2–5 Years)The mechanism is the forced substitution of aluminum for copper, which immediately strikes the physical and thermodynamic limits of engineering. The bottlenecks are aluminum's inferior 61% IACS conductivity and its high thermal expansion and creep in dense grid environments and EV motors. Leading indicators are mass corporate hardware redesign announcements and shifting structural Cu/Al price ratios.

• Order 12: Civilizational Redesign (5+ Years)The mechanism represents the terminal shift: the doctrine of economic efficiency is permanently subordinated to the bureaucratic mandate of resource security, resulting in industrial autarky. The bottlenecks are the limits of capital allocation, the physical militarization of supply chains, and the massive inflationary costs of near-shoring. Leading indicators are sweeping structural tariff escalations and massive strategic mineral stockpiling FIDs, such as the US Project Vault.

Section 2: The 12-Order Deep Dive

Order 1: Maritime Flow Interruption

The Strait of Hormuz stands as the ultimate geographical monopoly over the global hydrocarbon economy. Its spatial reality, measuring a mere 21 miles wide at its narrowest point, with functional shipping lanes strictly demarcated by a two-mile buffer zone, constructs an unparalleled architecture of systemic vulnerability. A zero-flow closure instantaneously strands between 20.7 and 20.9 million barrels per day (bpd) of crude oil, condensate, and refined petroleum products. This volume dictates the terms of global trade, representing over 20% of global liquid consumption and more than 25% of the total seaborne oil market. Concurrently, a staggering 10.5 to 11.4 billion cubic feet per day (Bcf/d) of Liquefied Natural Gas (LNG), equating to roughly 80 million tonnes per annum (mtpa), or 20% of the entire global LNG trade, is physically trapped within the Persian Gulf. Qatar alone is responsible for 9.3 Bcf/d of this trapped volume, with an overwhelming 83% to 84% of these cargoes historically destined to feed the energy-starved industrial machines of Japan, South Korea, China, and Taiwan.

The prevailing market assumption that regional pipeline infrastructure offers salvation is mathematically false. The rationalization of bypass routes reveals severe limitations:

• Saudi East-West Petroline: Boasting a nameplate capacity of 5.0 million bpd, this route from Abqaiq to the Red Sea port of Yanbu offers only an estimated ~2.4 million bpd of functional spare capacity. Crucially, the system cannot simultaneously fill buffer storage and maximize loading rates for VLCCs.

• UAE Habshan-Fujairah Pipeline: Routing from Abu Dhabi to the Gulf of Oman, its 1.5 million bpd nameplate capacity is heavily constrained by existing utilization, providing a mere 0.4 to 0.7 million bpd of functional relief.

Combined, this optimal pipeline diversion achieves only 2.8 to 3.1 million bpd, guaranteeing an absolute, unmitigated physical supply deficit exceeding 17.5 million bpd of liquids globally.

The immediate bureaucratic reaction of the market is a hyper-spike in the Very Large Crude Carrier (VLCC) ton-mile multiplier. Protection and Indemnity (P&I) Clubs, the institutional gatekeepers covering 90% of global commercial tonnage, issue standard 72-hour notices of war-risk insurance cancellations. This actuarial withdrawal instantly idles upwards of 40 VLCCs and 13 LNG tankers within the Gulf. Consequently, VLCC freight rates on alternative global routes detonate. Benchmark Persian Gulf-to-China TD3 rates have previously spiked to W419 on the Worldscale index (approximately $423,736 per day) under lesser kinetic threats, pushing lumpsum US Gulf Coast-to-China voyages into the $20 million to $21.5 million range. Prompt-month backwardation on ICE Brent shatters historical norms as refineries blindly bid for survival barrels, structurally repricing the benchmark past $100/bbl, with extreme disruption models projecting a grim equilibrium between $108 and $140/bbl.

Order 2: Refining & Industrial Chemicals

The starvation of Middle Eastern crude imposes a harsh chemical calculus upon the global industrial sector. The majority of crude transiting the Strait is classified as "sour," defined by a naturally occurring sulphur content exceeding 0.5% by weight. The bureaucratic mandate of global environmental fuel standards dictates that refineries must subject this crude to rigorous hydrodesulfurization, predominantly utilizing Claus technology, which operates at an inflexible 98% recovery efficiency. Thus, the petroleum sector operates as the world's primary, involuntary producer of elemental sulphur.

The sudden erasure of 17.5 million bpd of sour Gulf crude, coupled with the shutdown of integrated gas-processing megaliths, like QatarEnergy's Ras Laffan complex, which processes 10,000 tonnes of liquid sulphur daily, removes an exact 3.8 million tonnes of annual sulphur capacity from the global balance. This eliminates approximately 8% of the worldwide seaborne sulphur trade overnight.

This void immediately throttles the $35.13 billion global sulphuric acid (H₂SO₄) industry. As the foundational chemical for modern rationalized industry, it is non-negotiable for phosphate fertilizer production, wastewater treatment, and metallurgical leaching.

• Pricing Volatility: The market responds with merciless volatility. Domestic Chinese smelter-grade sulphuric acid prices possess the proven capacity to surge 113% year-over-year, vaulting from 400 yuan/ton to over 1,170 yuan/ton during minor historical mismatches. Under a Hormuz closure, these numbers will shatter records.

• Logistical Constraints: Sulphuric acid is toxic, highly corrosive, and ensnared in transport regulations. Global inventory coverage is perilously thin, measured in mere days or weeks. Furthermore, geographical arbitrage is physically impossible; the substance requires specialized, lined railcars and designated chemical tankers. Import-dependent industrial sectors are simply stranded by the physics of transport.

Order 3: Mining & Metals Extraction

The cascading sulphuric acid famine systematically paralyzes hydrometallurgical base metal extraction, inflicting acute devastation upon the Central African Copperbelt.

• DRC & Zambia Exposure: The Democratic Republic of the Congo (DRC) and Zambia stand as the indispensable pillars of electrification, commanding approximately one-sixth of global copper output (the DRC producing 3.3 million tons, Zambia 680,000 tons in 2024) and over 70% of global cobalt supply. This output is entirely captive to the chemical requirements of Solvent Extraction and Electrowinning (SX-EW) for oxide copper ores, and High-Pressure Acid Leaching (HPAL) for cobalt and nickel. Both demand a relentless, uninterrupted deluge of sulphuric acid.

• Acid Buffers and Force Majeure Risks: The region is structurally deficient in sulphur. The DRC alone is forced to import over 500,000 tonnes of elemental sulphur annually to feed its local sulphur-burning acid plants. In a zero-flow scenario, these seaborne imports vanish. Zambia will inevitably execute a sovereign override, instituting acid export bans to protect its domestic mining survival. Survival becomes a function of vertical integration: Ivanhoe Mines' Kamoa-Kakula complex relies on a captive direct-to-blister smelter producing 1,200 tonnes per day of 98%-pure acid (400,000 tonnes annualized), offering a rare operational fortress. Conversely, standalone SX-EW and HPAL operations face mandatory force majeure as regional spot acid prices in Kolwezi violently breach $700 per tonne.

• Chilean Contagion: Across the Pacific, Chile's state-owned Codelco relies on bacteria-assisted bioleaching and SX-EW processes at colossal sites like Escondida, sustained by acid recycled from local solvent extraction and domestic smelting. Yet, as global acid prices ascend to unprecedented heights, merchants are heavily incentivized to export acid rather than supply domestic Chilean operations, forcing an artificial structural slowdown across South America's primary copper veins.

Order 4: Grids & Power Hardware

The resulting base metal deficit collides with the pre-existing gridlock of the heavy electrical equipment supply chain. The rationalized goals of the renewable energy transition and the explosive electrification of AI data centers are entirely beholden to the availability of Large Power Transformers (LPTs) and high-voltage metal-clad switchgear.

• OEM Backlogs & Lead Times: The manufacturing oligopoly, Siemens Energy, Hitachi Energy, and GE Vernova, is operating against the hard limits of physical capacity. Siemens Energy reported a staggering, record-breaking total order backlog of €146 billion in early 2026, driven by a 21.8% year-over-year surge in its Grid Technologies division. Capital interventions are underway, Hitachi Energy's $1.5 billion injection into Virginia and Poland, and Siemens Energy's €220 million Nuremberg expansion, but capital cannot instantly alter physical reality. Consequently, LPT lead times (100 MVA and above) have stretched from a historical baseline of 50 weeks to a new norm of 120 weeks, with ultra-high-voltage units demanding up to 210 weeks, or over four years of waiting.

• The GOES Bottleneck: The ultimate constraint is not merely copper, but Grain-Oriented Electrical Steel (GOES), an engineered iron-silicon alloy requisite for minimizing magnetic core transmission losses. In the US, this supply is a functional monopoly dictated by Cleveland-Cliffs. Scaling the production of premium ultra-thin GOES (below 0.27 mm) requires glacial multi-year qualification cycles and prohibitive capital outlays of $500 to $700 million for bell-anneal lines.

• Chemical/Physical Limits: LPT manufacturing cannot be optimized through software. The vapor-phase drying process required for the transformer core's cellulose insulation is an inflexible chemical curing cycle. It submits to the laws of chemistry, not the agile demands of the market.

Order 5: Semiconductor Supply Chains

Taiwan's structural energy procurement framework ensures that the entire global semiconductor supply chain is acutely exposed to the mechanics of a Hormuz closure.

• LNG Starvation: The island's industrial apparatus requires importing nearly 98% of its total energy, with state-owned Taipower relying on LNG for 42% to 47% of its total electricity generation. Crucially, roughly 30% of this LNG is sourced directly from Qatar. The vulnerability is legally hardcoded: Taiwan's statutory security storage requirement for LNG is a critically low 11 days. A cessation of Qatari flows, met by a desperate global bid for Atlantic cargoes, guarantees that Taipower's percent operating reserves (POR) will collapse within two weeks. The inevitable bureaucratic response is mandated grid rationing and rolling industrial brownouts.

• Voltage Sag Tolerance Limits: The foundries of the Taiwan Semiconductor Manufacturing Company (TSMC) demand absolute electrical perfection. Governed by the SEMI F47-0706 standard, advanced semiconductor processing and metrology tools are engineered to withstand voltage sags of 50% for exactly 200 milliseconds (0.2 seconds), 70% for 0.5 seconds, and 80% for 1 second. Historical precedent at the Hsinchu Science Park proves that a microsecond drop of a mere 0.1 seconds (at 79% to 95% nominal voltage) triggers massive internal tool failures, resulting in the catastrophic scrapping of tens of thousands of wafers and hundreds of millions in vaporized capital.

• ABF Substrate Chokepoints: Simultaneously, the advanced packaging of completed silicon faces an intractable chemical bottleneck. Ajinomoto Build-up Film (ABF) substrates, the essential insulators for high-performance computing, are trapped behind 28-week lead times. The laser-drill capacity required to manufacture them is monopolized by LPKF Laser and Mitsubishi Electric, both groaning under 18-month backlogs. This restricts key suppliers like Ibiden and Shinko Electric, choking the final assembly lines of NVIDIA and AMD.

Order 6: Compute & Data Centers

The intersection of Order 4 (transformer gridlock) and Order 5 (silicon fabrication failures) imposes a hard, mathematical stop upon the AI infrastructure supercycle.

• Interconnection Queues: The institutional forecast for US summer peak demand growth skyrocketed to 166 GW in 2025, with data centers commanding 55% of this burden. The bureaucratic reality is a massively overloaded US interconnection queue, suffocating under 10,300 projects representing a 2,600 GW backlog. The friction of unpredictable delays and exorbitant grid upgrade costs has driven the project withdrawal rate to nearly 80%.

• Time-to-Power Constraints: In critical digital geographies like Northern Virginia (the PJM footprint), GW-scale facilities face power interconnection wait times extending up to 7 years. Hyperscalers, AWS, Google, Meta, attempt to circumvent this reality by purchasing land for behind-the-meter gas generation. Yet, without the physical delivery of high-voltage switchgear and LPTs, these commercial operation dates are entirely fictitious. The metric of "speed-to-power" becomes an impossibility, threatening widespread capital expenditure cancellations and leaving billions locked in sterile real estate and dormant silicon.

Order 7: Capital Markets & Credit

The failure of physical supply chains translates directly into the financial system via rapid, unrelenting corporate margin compression and the vaporization of foreign exchange liquidity.

• High-Yield Repricing: The heavy industrial conglomerates that build the world's architecture are the first to absorb material inflation. Siemens Energy, bound by complex global execution and wind turbine logistics, has previously watched its bonds widen beyond 300 bps over mid-swaps, trading worse than BB+ high-yield peers, due to fixed-price contract overruns. As copper and specialized steel costs enter hyper-inflation, these OEM contracts bleed cash, ensuring credit downgrades and structural debt restructuring across the sector.

• EM FX Depletion: Emerging markets tethered to dollar-denominated oil imports face the brutal mathematics of FX reserve depletion. At $100+ per barrel, central banks must hemorrhage dollar reserves merely to sustain baseline domestic survival. Currency acts as the immediate shock absorber. The South Korean Won (KRW) possesses high beta sensitivity to energy, previously surging past 1,462 per dollar during kinetic shocks. The Indian Rupee (INR) and Thai Baht face identical downward violence, embedding imported inflation deep into the domestic economy and obliterating local liquidity.

Order 8: State Response Layer

Faced with the collapse of the market mechanism, sovereign entities assert their monopoly on power through strategic overrides. Yet, these decrees remain strictly bounded by the inflexible laws of physics and hydraulic engineering.

• US Strategic Petroleum Reserve (SPR) Limitations: The US SPR houses approximately 411 million barrels inside 61 engineered salt caverns across Texas and Louisiana. Politically, it is a weapon; physically, it is a pipe. The absolute maximum nominal hydraulic drawdown capability is strictly capped at 4.4 million bpd. Furthermore, the bureaucratic friction of execution ensures a 13-day lag from Presidential signature to physical market entry. Consequently, running at maximum stress, the SPR replaces only ~25% of the 17.5M bpd global shortfall. The system remains fundamentally starved. Prolonged extraction at these rates also risks severe dilatant and tensile stresses, threatening the structural integrity of the salt walls themselves.

• Defense Production Act (DPA): The executive branch will inevitably invoke the DPA to forcibly reallocate domestic GOES and LPT production toward critical defense and civilian grid triage. However, administrative edicts cannot accelerate the chemical curing time of transformer insulation, nor can they summon specialized metallurgical engineers or conjure the heavy-haul railcars necessary to move 400-ton monoliths. The DPA does not create new supply; it merely engineers a rigid reallocation of poverty.

Order 9: Trade Architecture

The irrecoverable loss of the Persian Gulf corridor demands a multi-year restructuring of global maritime routes, exposing the severe limitations of global shipbuilding capital.

• Shipbuilding Limits: The capacity to forge new vessels is heavily monopolized, with Chinese yards controlling 46% of total capacity (securing over 68% of new orders in late 2025) and South Korea commanding 25%. Western attempts to commission smaller bypass tankers or dedicated US-to-Asia LNG carriers hit an unyielding wall: premier Asian shipyards are entirely booked through 2028, with delivery cycles for high-end vessels dragging into 2029. The global VLCC fleet cannot rapidly scale to absorb the massive ton-mile inflation of Cape of Good Hope routing; effective fleet growth is structurally capped below 3% annually, compounded by the reality that nearly 20% of existing VLCCs are over 20 years old and destined for the shadow fleet or the scrapyard.

• Petroyuan Acceleration: As dollar liquidity evaporates from the treasuries of Emerging Markets (Order 7), China deploys its strategic petroleum reserves and dominant refining infrastructure to exert geopolitical leverage. By issuing yuan-denominated swap lines to distressed Asian neighbors in exchange for refined products or access to overland Russian pipelines, Beijing forces the structural de-dollarization of East Asian energy trade, cementing the Petroyuan as the dominant mechanism for crisis survival.

Order 10: Social Stability

The inflation of core energy inputs directly degrades agricultural yields, efficiently translating a logistical bottleneck into a humanitarian catastrophe. Natural gas serves as the indispensable chemical feedstock for ammonia, the basis of urea and complex nitrogen fertilizers.

• Fertilizer Shocks: With 40% to 50% of the world's internationally traded nitrogen-based fertilizers originating from or passing through the Gulf, a Hormuz closure dictates an immediate, violent spike in agricultural input pricing. This mathematically guarantees elevated global food prices within a single harvest cycle.

• Sovereign Debt Defaults: Sovereigns bearing high debt burdens and heavy import reliance face immediate insolvency as they attempt the impossible task of subsidizing fuel and food for their populations. Egypt, currently navigating an $8 billion IMF Extended Fund Facility with structural inflation and high LNG reliance, and Turkey, battling 10-Year Government Bond yields exceeding 31%, sit on the precipice of ruin. Their sovereign Credit Default Swap (CDS) spreads will violently breach the 600 bps distress threshold as FX reserves vanish. The sheer inability to procure fuel and fertilizer guarantees widespread power rationing, collapsing food security, and profound social unrest across North Africa and South Asia.

Order 11: Industrial Structure Shifts

Desperate to circumvent base metal scarcity (Order 3) and spiraling grid hardware costs (Order 4), the industrial complex attempts mass material substitution. The pivot from copper to aluminum, however, crashes instantly into the uncompromising laws of thermodynamics.

• Conductivity and Spatial Limits: Aluminum offers a mere 61% of copper's electrical conductivity on the IACS scale. To transmit an identical electrical current, the aluminum conductor demands a 1.6x larger cross-sectional area. In the spatial austerity of EV drivetrains, aerospace architecture, and high-density AI server racks, accommodating this added bulk is a physical impossibility without initiating multi-year, ground-up engineering redesigns.

• Thermal Loads and Creep: Aluminum's thermal conductivity is severely deficient (237 W/mK against copper's 401 W/mK), failing to dissipate heat under high-load conditions. Moreover, aluminum exhibits a profound susceptibility to thermal expansion and "creep", the cold flow away from pressure. Subjected to the intense mechanical vibrations of electric motors or industrial generators, this creep guarantees loose connections, spiking electrical resistance, and catastrophic fire hazards. Substitution is not an agile pivot; it is a hazardous, multi-year engineering commitment.

Order 12: Civilizational Redesign

The terminal phase of the cascade marks the permanent institutionalization of a new paradigm: "economic efficiency" is eradicated, replaced entirely by the doctrine of "resource security." The illusion of Just-In-Time global logistics is shattered. Capital allocation pivots with extreme prejudice toward autarkic industrial policy. Sovereign wealth funds and defense budgets are forced to internalize the astronomical premiums of near-shoring critical supply chains, evidenced by policies like the US government's $12 billion "Project Vault" to hoard domestic cobalt and sever Chinese dependencies.

To safeguard what remains of international trade, alternative maritime chokepoints, such as the Strait of Malacca and the Panama Canal, submit to overt, permanent naval militarization. The rationalized global economy formally fragments, abandoning the pursuit of free trade to operate as a system of heavily armed, partitioned, and aggressively redundant macro-blocs.

Section 3: Scenario Stress-Test Matrix

Subjecting this architecture to distinct temporal stresses reveals the precise breaking points of the global system.

Scenario A: Short Shock (≤ 14 days)

• Top 5 Binding Constraints: The absolute physical stranding of 17.5M bpd of oil and 80 mtpa of LNG. Total withdrawal of P&I Club War Risk Insurance, instantly freezing off-shore tanker movement. Taiwan's precarious 11-day statutory LNG reserve limit. The US SPR's rigid 13-day temporal lag to physically inject its 4.4M bpd maximum into the market. Maximum functional bypass pipeline limits (Saudi/UAE capped at ~3.1M bpd).

• First Two Structural Breaks: Spot LNG Markets: Panic buying shatters TTF and JKM pricing ceilings as European and Asian utilities irrationally bid up Atlantic cargoes to secure baseload survival. Taiwanese Grid Stability: Breaching the 11-day LNG buffer forces Taipower's percent operating reserves (POR) below critical thresholds, necessitating immediate rolling blackouts across industrial zones.

• Dominant Macro-Drivers: Orders 1 (Maritime Logistics), 5 (Semiconductor Power Security), and 8 (State SPR Response).

Scenario B: Medium Shock (1–3 months)

• Top 5 Binding Constraints: Extreme depletion of EM Foreign Exchange reserves (KRW, INR) driven by dollar-denominated energy hyper-inflation. Global elemental sulphur shortage resulting from the total removal of Qatar's 3.8M tpa capacity. Spot sulphuric acid prices (>1000 yuan/ton) obliterating the operating margins of base metal refiners. SEMI F47 voltage sag limits (50% drop for 0.2 seconds) breached at TSMC fabs due to sustained Taiwanese grid rationing. Codelco and African Copperbelt SX-EW hydrometallurgical operations forced into shutdown due to chemical starvation.

• First Two Structural Breaks: Advanced Node Semiconductor Yields: Microsecond voltage sags across Taiwan trigger massive wafer scrap events and equipment recalibration delays, crippling advanced AI chip output. Base Metal Mining Force Majeures: SX-EW copper and HPAL cobalt mines in the DRC and Zambia officially issue force majeure as toxic sulphuric acid cannot physically be transported fast enough to replace local deficits.

• Dominant Macro-Drivers: Orders 2 (Industrial Chemicals), 3 (Mining Extraction), and 7 (Credit & FX).

Scenario C: Long Shock (≥ 6 months)

• Top 5 Binding Constraints: LPT lead times extending structurally beyond 210 weeks as copper input supply lines fail. Absolute exhaustion of global GOES production capacity and specialized bell-anneal capital expenditures. The 2,600 GW US interconnection queue permanently frozen due to the total lack of high-voltage switchgear. Sub-3% global VLCC fleet growth capacity, tightly restricted by Asian shipyards booked entirely through 2029. The thermodynamic impossibility of rapidly substituting aluminum for copper in high-thermal load EV and AI hardware.

• First Two Structural Breaks: AI/Compute Capex Freeze: Hyperscalers (AWS, Meta) and semiconductor developers (NVIDIA) cancel multi-billion dollar deployments as the lack of switchgear and LPTs shoves commercial operation dates into the next decade. Emerging Market Sovereign Default: Heavily exposed nations (Turkey, Egypt, Pakistan) completely exhaust their fiscal space attempting to subsidize imported ammonia/urea and diesel, triggering systemic CDS defaults and requiring emergency IMF bailouts.

• Dominant Macro-Drivers: Orders 4 (Grid Hardware), 6 (Compute Scaling), 10 (Social & Sovereign Stability), and 11 (Industrial Redesign).

Section 4: Terminal Stopping Rule

The 12-Order Cascading Systems Shock ceases to function as a predictive analytical framework beyond Order 12 because the causal pathways abandon exogenous linearity and become entirely endogenous and recursive.

Upon reaching Civilizational Redesign (Order 12), the panicked interventions of sovereign states and industrial monopolies generate infinite feedback loops that rewrite the foundational variables. The starvation of copper (Order 3) ensures the permanent halt of LPT production (Order 4), which directly barricades heavy electrical grid expansion (Order 6). Lacking grid expansion, the massive baseload power required to drive advanced smelting, desalination, and mining operations (Order 3) is suffocated, locking the system into a self-consuming industrial death spiral.

Furthermore, as the state apparatus enforces autarkic industrial policies and militarizes supply lines, the traditional metrics of market equilibrium, price elasticity, and marginal cost evaporate. Prices are no longer discovered; they are dictated by state decree, retaliatory export bans, and strategic hoarding (as demonstrated by China's domestic sulphur export caps and the US execution of Project Vault).

Predictive quantitative macroeconomics shatters against this reality. Standard modeling of lead times and material substitution fails because commodities are transformed into direct kinetic weapons, and maritime trade routes submit to naval dominance rather than arbitrage. Thus, beyond Order 12, the paradigm shifts entirely: the global system can no longer be modeled as a supply-chain shock; it must be understood as the permanent bureaucracy of geopolitical total war.

Tyler Durden Thu, 03/05/2026 - 16:20

Indiana Governor Signs Bill Allowing Crypto In Retirement Plans

Authored by Stephen Katte via Cointelegraph,

Indiana will start allowing certain retirement and savings plans to include crypto investments and has enacted stronger legal protections for the crypto industry under a newly signed bill. 

Governor Mike Braun signed House Bill 1042 into law on Tuesday, after it passed the legislature last Thursday. The legislation requires Indiana’s state public retirement and savings plans to offer self-brokerage accounts with at least one crypto investment option by July 2027.

According to the bill’s description, this requirement applies to the legislators’ defined contribution plan, the Hoosier START plan, certain public employees’ retirement funds, and specified teachers’ retirement fund plans.

More institutions are adopting digital assets, with Bitbo estimating that over 3.7 million Bitcoin (worth $258 billion) are held by publicly traded and private companies, exchange-traded funds and governments.

Protections for crypto payments and mining

The bill also includes provisions to protect the rights of crypto users. Under the legislation, public agencies — except the Department of Financial Institutions — are barred from adopting or enforcing rules that ban crypto payments, self-custody or mining.

The bill also clarifies that a money transmitter license isn’t required for apps and software protocols that allow non-custodial transfers.

Local governments, such as counties, municipalities, or townships, also can’t single out crypto mining businesses or home miners with special restrictions not applied to similar businesses or activities in the same zoning area.

Noise from crypto mining operations has caused friction in other states. Residents in Hood County, Texas, attempted to form a new municipality to regulate noise from a local mining facility last year. 

Access to retirement funds a boon for crypto

At the federal level, President Donald Trump’s August executive order “Democratizing Access to Alternative Assets for 401(k) Investors” directed the SEC to make alternative assets like crypto more accessible in participant-directed retirement plans.

Some analysts, such as Tom Dunleavy, the head of venture at Varys Capital and a former senior analyst at Messari, predicted that even a 1% allocation to crypto in 401(k)s could bring in $120 billion in new flows.

Tyler Durden Thu, 03/05/2026 - 15:45

UBS Discusses Next Maritime Chokepoint Investors Should Watch

A lot of attention has centered on the Strait of Hormuz since the waterway was effectively shut not only by the IRGC drone threat, but mostly because maritime insurers are withdrawing war-risk coverage across the region. Our focus now shifts to the other critical maritime chokepoints. If Washington can pressure Iranian oil flows and, by extension, curb China's cheap Gulf crude flows, then the Taiwan Strait and South China Sea also emerge as potential flashpoints that traders can no longer afford to ignore.

For more color on which critical maritime chokepoints and geopolitical flashpoints investors should watch next, Bilahari Kausikan, former Permanent Secretary of Singapore's Ministry of Foreign Affairs, spoke with UBS's Aditi Samajpati at the 14th UBS OneASEAN Summit in Singapore to discuss the issue earlier on Thursday.

Kausikan told Samajpati that China claims about 80% of the South China Sea, but other surrounding countries reject those claims, and none of the disputes are likely to be resolved in the near term. He described the situation in the highly disputed waterway as a "strategic stalemate," not an immediate crisis, because China is unlikely to openly block trade or challenge freedom of navigation if doing so risks war with the U.S.

"Obviously, the South China Sea is another point of vulnerability. There are multiple disputes, and China claims about 80% of the South China Sea, which is not accepted by the surrounding states," he said.

"But I think overall the situation in the South China Sea - by the way, none of these disputes are going to be resolved - but I think overall it is not ideal, but not dire," Kausikan said.

He continued, "It's a strategic stalemate. On the other hand, the Chinese cannot stop the US and other powers from operating in the South China Sea, without risking war."

Kausikan pointed out that the presence of the U.S. Navy should be viewed as a stabilizing force that preserves trade flows and prevents China from turning its claims into uncontested control.

Regarding U.S. pressure on Venezuela and Iran, Kausikan said it is unclear whether Washington's goal is specifically to squeeze China's crude imports, but it could have that effect, since both countries are critical, cheap crude suppliers to China.

At the same time, he said Trump's willingness to provide naval escort to commercial traffic through Hormuz suggests the U.S. is not trying to completely choke off China, but rather to create leverage.

For Asia as a whole, Kausikan said energy stability should be a major issue across the region. He said ASEAN's best path toward greater strategic autonomy is deeper energy integration, especially through a shared regional grid that could combine nuclear, hydro, and other power sources.

To sum up, China and the rest of Asia received a giant wake-up call this week as cheap crude and LNG flows from the Gulf were curtailed. All of this is happening ahead of President Trump's trip to China later this month.

We think readers should keep a close eye on other maritime chokepoints worldwide.

Spillover risks from the Middle East conflict are building. The question now is: where is the next powder keg to go off? 

Tyler Durden Thu, 03/05/2026 - 15:31

The Passive Aggressive Market: Bogle's Warning Came True

Authored by Michael Lebowitz via realinvestmentadvice.com,

Since the pandemic, the line between passive investing and aggressive speculation has blurred. The current bout of speculative fervor extends beyond financial markets. For instance, we see the same impulse in the explosion of sports betting and the surge in event-betting sites like Kalshi and Polymarket.

In the investment arena, margin debt is at record highs (as shown below), and zero-day-to-expiry (0DTE) stock options now account for approximately 50 percent of all options volume. Furthermore, the number of leveraged ETFs and their trading volumes have risen sharply. To wit, we share a quote from The Kobeissi Letter:

There are now a record 108 long and 31 short tech-related leveraged ETFs, 139 in total. This is 3 TIMES more than the 2nd largest sector, financials, with 47 total funds. By comparison, Consumer Discretionary has 44 ETFs, while Communication Services has 34 ETFs. In other words, tech has more leveraged ETFs than the next 3 sectors COMBINED.

While not as easy to quantify as margin debt or sports betting, this aggressive speculative behavior is showing up in passive securities. It is most visible, for instance, in the fierce rotations between sector and factor ETFs.

In this article, we explore how the speculative environment and aggressive trading in passive ETFs are playing out.  We also examine how to identify and capitalize on sector and factor rotations, turning passive investors’ aggressive behavior into an opportunity.

Passive Investment Strategy Timeline

In 1952, Harry Markowitz and his Modern Portfolio Theory laid the groundwork for passive strategies. His thesis is that diversification across a broad market portfolio maximizes returns for a given level of risk. He argued for what has since been termed indexing.

John Bogle is known as the “father of indexing.” In 1976, he launched the First Index Investment Trust at Vanguard. His fund, tracking the S&P 500, was the first index mutual fund available to retail investors. The fund was mocked by competitors as “Bogle’s Folly.” Today, Vanguard manages over $12 trillion in assets, a testament to the power of Bogle’s low-cost, buy-and-hold passive investing philosophy. Ironically, Bogle warned that ETFs’ intraday liquidity would tempt investors into the active trading behavior he had spent his career arguing against.

In 1993, the SPDR S&P 500 Trust (SPY) became the first ETF available to US investors, enabling intraday trading in passive indexing securities.

Passive investment strategies and associated securities were designed to bring discipline and longer-term strategic thinking to investors. Instead of actively buying and selling individual stocks to beat the market, passive strategies are comfortable matching market returns.

Bogle’s Warning

Despite the compelling long-term case for passive investing, something has changed in how investors actually use these instruments. As Bogle warned, ETFs would lead passive investors to become more active. And indeed, that is what has happened.

Over the past few years, for example, we have seen sharp divergences in the returns between various broad-market indexes, sector ETFs, and factor ETFs. Investors are not buying broad market ETFs and holding them. Instead, it is becoming increasingly popular to rotate aggressively between index ETFs (S&P, Nasdaq, Dow), sector ETFs (technology, staples, financials), and factor ETFs (momentum, value, market cap) in response to short-term market narratives. This is active management despite the use of passive securities.

Another example is leveraged ETFs. These products reset daily, eroding returns over time and making them unsuitable for anything but short-term active trading strategies. Eroding returns are called volatility decay and are an SEC-mandated warning in every leveraged ETF prospectus, as we share from the Direxion ETF prospectus below:

If a Fund’s shares are held for a period other than a calendar month, the Fund’s performance is likely to deviate from the multiple of the underlying exchange-traded fund performance for the period the Fund is held. This deviation will increase with higher underlying volatility and longer holding periods

The explosive growth of leverage ETFs, as we noted in the opening, is evidence of short-term speculative behavior inside the passive universe.

Lastly, there is a sharp increase in the number of thematic ETFs. ETFs tied to themes like artificial intelligence, clean energy, and precious metals attract massive inflows when a narrative is hot. Fund outflows are equally powerful when the narrative fades.  This is momentum-chasing dressed in passive clothing.

Many investors who describe themselves as passive would, if they examine their transaction history honestly, likely find behavior that looks a lot more like active trading.

Rotation Analysis

Understanding that investors are using passive instruments to trade aggressively across sectors and factors is one thing. Profiting from it is another. For our part, we use technical analysis on our SimpleVisor website to identify when these rotations begin, accelerate, end, and reverse.

We introduced the value of rotation analysis and trading in 2023 with our article: Relative Rotation- Unlocking The Hidden Potential. The most compelling argument for rotation analysis comes from the following graph in the article, which compares the relative performances of VYM and MGK to the S&P 500 (SPY). The takeaway from the graph is that when one ETF outperforms the market, the other tends to lag, creating a predictable rotation pattern that technical analysis can identify and exploit

To better appreciate how we use SimpleVisor for this task, we share an article written last year entitled: Growth To Value- Which Rotation Is Next? The article walks through our tools in detail and shows how we use them to position ahead of rotations in real time.

The more aggressively passive investors rotate, the more reliable these patterns and our tools become.

Narrative Analysis

Technical analysis, like the SimpleVisor tools we described, indicates when a rotation is probable or underway. Narrative analysis helps us understand the driving force behind investors’ collective actions. Importantly, researching the narrative helps us assess whether a narrative is built on solid ground or speculative momentum. In a market increasingly driven by aggressive trading in passive instruments, narratives spread faster and with greater force than ever before. A compelling narrative can trigger billions in ETF flows within days, long before the underlying fundamentals catch up — if they ever do.

Not all narratives are created equal. Some rotations are driven by genuine shifts in economic conditions or monetary policy. These rotations tend to be durable and worth following. Others are driven purely by momentum and media attention. A narrative heats up, aggressive passive investors pile into ETFs reflecting that theme, and the rotation feeds on itself until it no longer attracts investors.

Distinguishing between the two is as important as identifying the rotation itself. A technically strong signal supported by a fundamentally weak narrative is a trade not likely to last long.

Summary

The irony of modern passive investing is that the securities built for patience and longer-term discipline have become tools for short-term speculation. Passive investors, often without realizing it, are behaving more like active traders, rotating aggressively between sectors and factors in response to narratives.

Understanding this dynamic is the first step toward better investment discipline. For those looking to turn it into an opportunity, SimpleVisor’s rotation analysis tools help you identify and act on these shifts before the crowd does. Additionally, our blog articles, Daily Commentary, podcasts, and the weekly Bull Bear Report help separate the signal from the noise of current market narratives.

Tyler Durden Thu, 03/05/2026 - 15:05

China Guides Down: Beijing Drops Economic Growth Target To Lowest Level In 35 Years

China just admitted what we've been reporting for years: the old growth engine is sputtering, and the world's second-largest economy is officially shifting into a lower gear. At the opening of the National People's Congress (NPC) on Thursday, Premier Li Qiang unveiled a 2026 GDP growth target of 4.5% to 5% - the lowest benchmark since 1991 and the first time in over three decades Beijing has dared to set anything below 5%.

The announcement came at the start of the National People's Congress, a meeting of China's leaders in Beijing's Great Hall of the People where government officials reveal economic and policy priorities for the year. 

The Real Culprits: Homegrown Headaches, Not Just Tariffs

While one could point to the 2025 trade escalations and current uneasy truce (with higher duties suspended until late 2026 and a Trump-Xi summit looming March 31–April 2), China's slowdown is overwhelmingly domestic. Here's what's going on: 

• Property sector implosion - The bubble that once drove 25–30% of GDP has burst and shows no signs of bottoming. Sales, prices, starts, and completions keep sliding; developers default, local governments bleed revenue, and household wealth (tied up in real estate) evaporates. This crushes consumer confidence and spending more than any tariff ever could.

• Chronic deflation - Prices have fallen for years (longest streak since market reforms), eroding profits, wages, and willingness to spend. "Involution" (cutthroat overcapacity and race-to-the-bottom competition) in EVs, solar, batteries, and manufacturing squeezes margins while flooding markets.

• Weak domestic demand - High youth unemployment, stagnant wages, a shredded social safety net (driving sky-high savings instead of consumption), and post-property trauma leave households wary. Subsidies for appliances or EVs haven't moved the needle because people aren't earning enough to spend freely.

• Cooling job market and youth unemployment crisis - Urban youth unemployment (16-24 age group, excluding students) remains stubbornly elevated at ~16.5% as of late 2025, down only slightly from a record 18.9% peak amid structural mismatches: millions of new graduates flood the market each year chasing scarce white-collar and "iron rice bowl" government jobs (competition ratios hitting 100:1 in some provinces), while factories struggle with labor shortages due to overcapacity and export redirection.

• Overreliance on exports/investment - The old model is exhausted. Export redirection helped hit 5% in 2025, but structural maturation (harder productivity gains as China catches up) means diminishing returns.

That said, net exports still hit a record $1.2 trillion in 2025.

After China opened the country up to foreign investment, they grew rapidly - becoming the world's second-largest economy. Much of this growth comes from manufacturing - which included expansions in vast industrial parks, EV plants and data centers, typically financed by cheap loans from state-owned banks. The country's factories produce many of the world's electric vehicles, solar panels and lithium batteries - with carmaker BYD notably overtaking Tesla as the world's largest EV producer.  

Chinese Premier Li Qiang patted the country on the back for meeting 2025 economic growth of 5% amid a "grave and complex landscape" which blended internal difficulties with external shocks. As to the new, lower target - analysts see it as pragmatic: it buys breathing room for structural fixes (boosting consumption, tech breakthroughs in AI/robotics) without the pressure to juice numbers artificially. Some skeptics (e.g., Rhodium Group) argue real 2025 growth was closer to <3%, making the official stats look even more optimistic.

According to Eurasia Group China director Dan Wang, Beijing is now willing to tolerate slower near-term growth while focusing on longer-term structural solutions, the NYT reports.

CFR senior fellow Zongyuan Zoe Liu says the lower target is "what the market and economists at home and abroad expected and know," as it allows policymakers to tackle fundamental economic problems without scrambling to hit an inflated number. 

Tyler Durden Thu, 03/05/2026 - 14:50

Oil Is "Beginning To Flow" From Venezuela, Trump Says

Authored by Naveen Athrappully via The Epoch Times,

Oil is “beginning to flow” from Venezuela, with the United States and Venezuela engaging in a professional and dedicated manner on the issue, President Donald Trump said in a March 4 post on Truth Social.

“Delcy Rodríguez, who is the President of Venezuela, is doing a great job, and working with U.S. Representatives very well,” Trump wrote.

Rodríguez became the leader of Venezuela in January after U.S. forces captured Venezuelan leader Nicolás Maduro on Jan. 3. Maduro is currently facing charges of narco-terrorism and drug trafficking in the United States.

 

Replying to Trump’s post, Rodríguez said in a March 4 X post, “I thank President [Trump] for the kind willingness of his government to work together on an agenda that strengthens binational cooperation for the benefit of the peoples of the United States and Venezuela.”

 

After being named the interim president of Venezuela following Maduro’s capture, Rodríguez had condemned Washington’s action, calling for Maduro to be returned. She termed the U.S. military action a violation of international law. Trump then warned that Rodríguez could face consequences if she didn’t “do what’s right.” Rodríguez has become increasingly cooperative with Washington over the weeks.

On Feb. 10, the U.S. Treasury Department issued a general license that authorized the exploration, development, and production of oil and gas in Venezuela. The license allows U.S. citizens to carry out oil and gas-related transactions with the Venezuelan government, including the development of new oil and gas sites.

Prior to this decision, Venezuela’s state oil company PDVSA had to curtail production due to a U.S. blockade aimed at putting pressure on Maduro.

On Feb. 13, the Treasury Department’s Office of Foreign Assets Control issued a broad license that allowed major oil companies—BP, Chevron, Eni, Shell, and Repsol—to restart operations in the nation.

“Venezuela holds tremendous economic potential, but years of instability, corruption, and economic mismanagement have limited the nation’s growth and prosperity,” a Treasury spokesperson said in a statement to The Epoch Times.

“These general licenses invite American and other aligned companies to play a constructive role in supporting economic recovery and responsible investment.”

Venezuela possesses the largest commercially viable oil reserves in the world, estimated to be roughly 300 billion barrels, making up around a fifth of the global total.

However, taking advantage of these vast reserves will require bringing down the cost of production to make oil investments profitable.

Venezuela’s oil projects require a breakeven price of $64 per barrel, which is “among the highest in South America,” S&P Global said in a Feb. 13 report. “But reforms under U.S. oversight could lower costs to $45–50/b within the next few years,” the report states.

U.S. Energy Secretary Chris Wright visited Venezuela last month on a three-day trip, promising to improve the country’s energy production metrics and economy.

“This year, we can drive a dramatic increase in Venezuelan oil production, in Venezuelan natural gas production, in Venezuelan electricity production, to increase the job opportunities, the wages, and the quality of life for all of the Venezuelans across the country,” Wright said during a press briefing alongside Rodríguez.

“It will also enormously benefit the United States, and the Western Hemisphere, and the future partnership for all of us.”

In a Feb. 12 report, the International Energy Agency (IEA) said that Venezuelan crude oil output dropped by 210,000 barrels per day to 780,000 barrels per day in January from the previous month.

On the positive side, “its output is expected to rebound after Washington authorised a pathway for U.S.-incorporated companies—including U.S.‑based subsidiaries of international firms—to export Venezuelan oil,” the report said.

Meanwhile, oil prices have surged in recent days due to the ongoing Iran War. U.S. and Israeli forces launched coordinated strikes against Tehran on Feb. 28 under Operation Epic Fury.

On Feb. 27, Brent crude oil futures closed the day at $72.48 per barrel. Prices have jumped to $82.58 as of Thursday, 4:35 a.m. EST, an increase of almost 14 percent.

The U.S. national average price of regular gas was $3.25 on March 5, up from $2.98 a week ago, according to data from the American Automobile Association.

Speaking to reporters on March 2, Secretary of State Marco Rubio said the White House was preparing to unveil a strategy to bring down rising energy prices. He did not give more details on the initiatives.

Tyler Durden Thu, 03/05/2026 - 14:37

Blacklisted: Anthropic Officially Deemed 'Supply Chain Risk' As Dario Crawls Back To Negotiating Table

Update (1430ET): While Anthropic CEO Dario Amodei is begging the Trump administration to reconsider dumping them over ethical concerns regarding military applications of their AI, the Pentagon just put one more nail in that coffin - officially deeming the company a supply chain risk, Bloomberg reports.

"DOW officially informed Anthropic leadership the company and its products are deemed a supply chain risk, effective immediately," a Department of War official told the outlet. 

The designation, typically reserved for foreign adversaries, follows President Trump's directive for federal agencies to phase out Anthropic tools within six months, with contractors potentially barred from commercial dealings. OpenAI has already capitalized, securing a revised contract that Anthropic's CEO Dario Amodei has publicly slammed as mostly "safety theater" - superficial safeguards prone to jailbreaks and lacking true oversight on real-world applications like mass domestic surveillance or autonomous lethal weapons.

As reported below, Amodei has personally reopened direct negotiations with Under Secretary Emil Michael to salvage or renegotiate terms - telling investors the push is to "de-escalate" and find an agreement that "works for us and works for them," amid heavy pressure from stakeholders to avoid broader blacklisting. The military's deep reliance on Claude - especially via systems like Palantir's Maven in ongoing operations - makes a total cutoff painful and disruptive for both sides. Anthropic has vowed to challenge the Supply Chain Risk designation in court as legally unsound if needed, but these ongoing, tense discussions suggest a potential path back from the brink.

Will Dario back down from his 'red line' - sparking employee exodus, or does he sink the company?

*  *  *

Things over at Anthropic are getting wild.

On Friday, the Trump administration 'fired' the woke serial copyright infringer, industry disruptor and software-engineer-extinctor after a bruising dispute with the Pentagon came to a head over ethical concerns surrounding Claude's military use - specifically, domestic surveillance and fully autonomous weapons. The Pentagon demanded to use ClaudeAI for "any lawful purpose" with no guardrails - or having to ask permission from a bunch of blue-haired Karens in a life-or-death scenario. The chatbot's supposedly idealistic leader (whose sister and Anthropic co-founder, Daniella Amodei, is married to Holden Karnofsky, the founder of Effective Altruism himself) had to signal virtuemaxx to his employees, and said no. OpenAi's Sam Altman, who is a different kinds of opportunistic sociopath with zero moral qualms, pretended to side with Amodei at first only to immediately swoop in and poach Anthropic's Pentagon contract. Meanwhile, Amodei's investors, who had just dumped all their cocaine cash for the next 20 years into his company at a $380 billion valuation, and realized they would never see their money again if the government blacklisted and banned the company from all government supply chains, were terribly vexxed. 

The spat resulted in three things; first, in addition to getting 'fired,' Anthropic was deemed a "supply-chain risk" (making them radioactive to the defense industry) - and federal agencies were given six months to ditch Anthropic products. Second, OpenAI's Sam Altman slid into Hegseth's DMs (through proper channels, we're sure) and landed Anthropic's contract - which they revised to beef up and clarify safety protocols, and third, Anthropic CEO Dario Amodei threw a ripper of a tantrum in a leaked memo sent to over 2,000 employees attacking the Trump administration and OpenAI. 

For Silicon Valley investors and allies, it immediately sank in how absolutely fucked they are if this stands. Now in a PR crisis, Amodei is scrambling to salvage his company’s relationship with the Pentagon (read: the goodwill of his investors) - and has begun last-ditch talks with senior officials in hopes of striking a new deal, FT reports, adding that he's now personally negotiating with Emil Michael, the Pentagon’s undersecretary of defense for research and engineering, who on Thursday called Amodei as a “liar” with a “God complex after talks with the Pentagon collapsed. 

It’s a shame that @DarioAmodei is a liar and has a God-complex. He wants nothing more than to try to personally control the US Military and is ok putting our nation’s safety at risk.

The @DeptofWar will ALWAYS adhere to the law but not bend to whims of any one for-profit tech… https://t.co/ZfwXG36Wvl

— Under Secretary of War Emil Michael (@USWREMichael) February 27, 2026

Pentagon Showdown

Anthropic drew several red lines against allowing its technology to power fully autonomous lethal weapons or mass domestic surveillance, arguing that the level of protections the Pentagon wanted would be ineffective, and that the Defense Department's language was suspicious.

"Near the end of the negotiation the department offered to accept our current terms if we deleted a specific phrase about ‘analysis of bulk acquired data,’" Amodei wrote in a memo to employees. "That was the single line in the contract that exactly matched the scenario we were most worried about. We found that very suspicious."

Pentagon officials, meanwhile, claim that Anthropic was demanding they ask permission in life-or-death nuclear scenarios, which Anthropic denied.

A defense official said the Pentagon’s technology chief whittled the debate down to a life-and-death nuclear scenario at a meeting last month: If an intercontinental ballistic missile was launched at the United States, could the military use Anthropic’s Claude AI system to help shoot it down?

It’s the kind of situation where technological might and speed could be critical to detection and counterstrike, with the time to make a decision measured in minutes and seconds. Anthropic chief executive Dario Amodei’s answer rankled the Pentagon, according to the official, who characterized the CEO’s reply as: You could call us and we’d work it out.

An Anthropic spokesperson denied Amodei gave that response, calling the account “patently false,” and saying the company has agreed to allow Claude to be used for missile defense. But officials have cited this and another incident involving Claude’s use in the capture of Venezuelan leader Nicolás Maduro as flashpoints in a spiraling standoff between the company and the Pentagon in recent days. The meeting was previously reported by Semafor. -Washington Post

Does the last-ditch effort to save things mean that Anthropic is going to budge on their red lines - perhaps matching whatever OpenAI has stipulated or agreed to?

Memo Meltdown

After OpenAI snaked their contract, Amodei dismissed the rival's safeguards as little more than "20% real and 80% safety theater," - claiming that OpenAI’s Pentagon deal appears to rely on “safety layers” and monitoring systems intended to block prohibited uses - safeguards he says are easily bypassed.

“Refusals aren’t reliable and jailbreaks are common,” he wrote, adding that AI models cannot reliably determine whether they are being used for surveillance or autonomous weapons because they lack visibility into the real-world context of how their outputs are used.

Amodei also blasted the idea that contractors such as Palantir could enforce restrictions through software filters.

"Our sense was that it was almost entirely safety theater," he wrote, claiming such tools were designed mainly to placate concerned employees rather than actually prevent abuses.

'We Haven't Given Dictator-Style Praise To Trump'

Amodei argued that the real reason the Trump administration is targeting Anthropic has nothing to do with technology or national security.

"The real reasons the DoW and the Trump admin do not like us is that we haven’t donated to Trump… we haven’t given dictator-style praise to Trump… and we have supported AI regulation," he wrote.

Amodei claimed OpenAI leadership - including president Greg Brockman - had donated heavily to pro-Trump political groups while Anthropic refused to play the same game.

He also accused the Pentagon of coordinating messaging with OpenAI to portray Anthropic as unreasonable in contract negotiations.

“Sam is trying to make it more possible for the admin to punish us by undercutting our public support,” Amodei wrote.

Which, again, begs the question of whether or not Anthropic is now willing to budge on their red lines.

Investors Alarmed

Needless to say, Anthropic’s investors and partners are freaked out - with backers including Amazon, Nvidia, Lightspeed Venture Partners and Iconiq Capital scrambling to hold urgent talks with the company in recent days as they attempt to defuse the conflict with Washington.

A major technology industry group representing many of these companies sent a letter to the Hegseth Wednesday warning against the Pentagon labeling any AI provider a supply-chain risk amid a procurement dispute.

But what really matters are Anthropic's investors - both current but especially future (after all someone has to fund those billions in perpetual losses)  - many of whom blame Amodei’s confrontational approach for escalating the situation.

“It’s an ego and diplomacy problem,” one person familiar with the talks told Reuters.

Some investors have reportedly reached out to contacts inside the Trump administration in hopes of calming tensions.

Following Trump and Hegseth's Friday announcement, several agencies began shifting away from the company. The State Department has reportedly moved to OpenAI following an order from the White House to phase out Anthropic systems within six months.

Meanwhile, Anthropic has raised tens of billions of dollars and is widely expected to pursue a public offering. Enterprise customers account for roughly 80% of the company’s revenue, and its projected annual run rate has reportedly surged from about $14 billion to $19 billion in recent weeks (and do we believe this?).

Tyler Durden Thu, 03/05/2026 - 14:31

White House Crypto Advisor Counters Jamie Dimon's Stablecoin Yield Logic

Authored by Danny Park via The Block,

Patrick Witt, the executive director of the President’s Council of Advisors for Digital Assets, made a statement in response to JPMorgan CEO Jamie Dimon's recent comment on stablecoin yields.

Earlier this week, Dimon said in an interview with CNBC that platforms that pay yield on stablecoins should be regulated like banks, arguing that "holding balances and paying interest" constitutes a banking institution. 

Dimon highlighted the need for a level playing field, suggesting that banks face stringent requirements, including FDIC insurance, anti-money laundering rules, and capital standards, and that stablecoin issuers offering similar interest-like rewards should face a similar level of oversight.

In response, Witt wrote on X that Dimon's view misrepresents the issue, claiming that the CEO's argument is deliberately inaccurate.

"The deceit here is that it is not the paying of yield on a balance per se that necessitates bank-like regulations, but rather the lending out or rehypothecation of the dollars that make up the underlying balance," Witt said. "The GENIUS Act explicitly forbids stablecoin issuers from doing the latter."

Witt added that stablecoin balances should not be viewed as equivalent to bank deposits.

The deceit here is that it is not the paying of yield on a balance per se that necessitates bank-like regulations, but rather the lending out or rehypothecation of the dollars that make up the underlying balance. The GENIUS Act explicitly forbids stablecoin issuers from doing the… https://t.co/il0dihdbwM

— Patrick Witt (@patrickjwitt) March 4, 2026

This issue was central to the delay in passing broader crypto market structure legislation, such as the CLARITY Act, where negotiations between banks and crypto firms over stablecoin rewards have remained contentious even after the GENIUS Act established a federal framework for payment stablecoins in July 2025.

Banks have strongly expressed concerns that allowing stablecoin yields could draw a significant chunk of deposits away from traditional banks. On the other hand, crypto advocates argue that properly regulated stablecoins offer consumers diversity and product opportunities for banks.

Meanwhile, the JPMorgan CEO suggested a potential compromise, which allows rewards on transactions rather than holdings. Such an option also appeared in the Senate Banking Committee's draft of the market structure bill, which resulted in Coinbase withdrawing its support from the legislation.

In recent weeks, the White House has been hosting closed-door meetings with crypto and banking executives to negotiate on the matter. While participants described the meeting as productive, no compromise has yet been reached.

Tyler Durden Thu, 03/05/2026 - 14:10

Tampons In Netflix Men's Room Torpedo'd Bid To Takeover Warner Bros: Report

Authored by Steve Watson via Modernity.news,

Netflix’s aggressive bid to swallow Warner Bros. Discovery hit a wall last week, with a “tampon incident” playing a key role in turning Republican lawmakers against the deal.

As details emerge, it’s clear the virtue-signaling stunt of stocking men’s restrooms with feminine hygiene products highlighted Netflix’s unyielding commitment to radical transgender ideology, even as they begged for political approval in a post-woke era.

The drama unfolded during a congressional delegation’s visit to Netflix headquarters in Los Angeles several weeks ago, part of an annual tour around Grammy Awards time. Among the attendees was Rep. Jason Smith (R-Mo.), chairman of the House Ways and Means Committee, a skeptic of Netflix’s claims to political neutrality.

How tampons in the men's room helped derail the Netflix-Warner Bros. deal https://t.co/EMjV5tyJDd pic.twitter.com/uO4AEsYtYx

— NY Post Business (@nypostbiz) March 1, 2026

The New York Post reports that while on the premises, Smith noticed a basket of tampons in the men’s restroom—a common tech company gesture to promote “inclusivity” for transgender employees.

But for conservatives, such moves symbolize efforts to normalize transgenderism, with ripple effects like encouraging harmful surgeries on children, eroding the nuclear family, and allowing biological males to dominate women’s sports.

“Let’s just say the chairman was pretty disturbed,” an insider familiar with Smith’s reaction told the Post.

The incident quickly rippled through Capitol Hill, reinforcing GOP suspicions that Netflix’s programming remains steeped in woke values. As one GOP staffer with firsthand knowledge put it: “This is 2026, not 2020. What were they thinking?”

Netflix CEO Ted Sarandos had been mounting a charm offensive, including a Senate Judiciary antitrust subcommittee grilling last month by Sen. Mike Lee (R-Utah). Sarandos insisted Netflix appeals to all tastes and faces stiff competition from social media and YouTube.

“Price wasn’t Sarandos’ only obstacle,” noted New York Post columnist Charles Gasparino. “During the six-month bidding war, many Republicans in Congress, state AG offices and of course the White House came to believe that Netflix was seeking to create a monopoly in streaming — an increasingly important way Americans consume entertainment.”

Gasparino added that most Republicans “believe [woke] values are front and center in Netflix’s programming, and the tampon incident, as it filtered through the halls of Congress, became proof that the company wasn’t changing its politics.”

Conservative advocacy groups have long documented Netflix’s bias, with content pushing transgenderism, DEI mandates, and other cultural-left staples—often in kids’ programming. Sarandos and co-founder Reed Hastings are major Democrat donors, while board member Susan Rice, a former Obama official and vocal Trump critic, made podcast remarks bashing Trump-associated businesses, further alienating the White House.

The deal’s collapse came after Paramount Skydance upped its hostile bid to $80.5 billion, trumping Netflix’s $73 billion offer. Sarandos pulled out, stating: “This transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.” Netflix’s stock plunged $200 billion during the saga but rebounded post-withdrawal.

For wider context, President Trump weighed in on the antitrust scrutiny, highlighting the merged entity’s “very big market share” and vowing involvement in the decision. This echoes broader concerns that the merger would stifle competition and amplify leftist narratives, as detailed in recent analyses warning of the “end of the Golden Age of streaming.”

This isn’t Netflix’s first brush with controversy over injecting radical ideology into entertainment. As we’ve covered extensively, the streamer has a track record of demonizing traditional values while promoting ‘progressive’ propaganda.

Recall Adolescence, which portrayed young white men and the “manosphere” as toxic threats.

Other examples abound. An Obama-produced apocalypse flick warned of the “dangers of white people”:

Netflix also plans to reboot the 1990s kids’ show Captain Planet with heavy globalist messaging:

And who can forget the 2020 film Cuties, celebrating 11-year-old girls twerking and dancing like strippers, earning the platform the nickname ‘nonceflix’.

These instances reveal a consistent pattern: Netflix uses its platform to erode family structures, and cultural norms under the guise of “entertainment.”

The failed Warner Bros. bid is a victory for common sense over corporate wokeness. By standing against this power grab, Republicans prevented an even larger megaphone for leftist indoctrination.

Your support is crucial in helping us defeat mass censorship. Please consider donating via Locals or check out our unique merch. Follow us on X @ModernityNews.

Tyler Durden Thu, 03/05/2026 - 13:50

"Pissed" Trump Fires Kristi Noem, Replaces With Markwayne Mullin

Aaaaaand, she's gone... Moments ago Bloomberg reported that Trump has named Sen. Markwayne Mullin (R-OK) to replace Noem. 

Trump posted the following on Truth Social:

"I am pleased to announce that the Highly Respected United States Senator from the Great State of Oklahoma, Markwayne Mullin, will become the United States Secretary of Homeland Security (DHS), effective March 31, 2026. The current Secretary, Kristi Noem, who has served us well, and has had numerous and spectacular results (especially on the Border!), will be moving to be Special Envoy for The Shield of the Americas, our new Security Initiative in the Western Hemisphere we are announcing on Saturday in Doral, Florida. I thank Kristi for her service at 'Homeland.'

Serving 10 years in the United States House of Representatives, and 3 in the Senate, Markwayne has done a tremendous job representing the wonderful People of Oklahoma, where I won all 77 out of 77 Counties — in 2016, 2020, and 2024! A MAGA Warrior, and former undefeated professional MMA fighter, Markwayne truly gets along well with people, and knows the Wisdom and Courage required to Advance our America First Agenda. As the only Native American in the Senate, Markwayne is a fantastic advocate for our incredible Tribal Communities. Markwayne will work tirelessly to Keep our Border Secure, Stop Migrant Crime, Murderers, and other Criminals from illegally entering our Country, End the Scourge of Illegal Drugs and, MAKE AMERICA SAFE AGAIN. Markwayne will make a spectacular Secretary of Homeland Security. Thank you for your attention to this matter!

PRESIDENT DONALD J. TRUMP"

Developing...

*  *  *

President Donald Trump is preparing to fire Homeland Security Secretary Kristi Noem amid growing frustration over her self-promotional leadership style and bruising congressional testimony this week, according to multiple reports.

Sen. John Kennedy (R-LA) described Trump as "pissed," according to NBC News.

Trump's dissatisfaction has intensified following Noem's appearance Tuesday before the Senate Judiciary Committee, where she faced sharp bipartisan criticism over her handling of department matters, including a high-profile advertising initiative, the Wall Street Journal reports.

An unnamed adviser to Trump described the hearing as particularly damaging, highlighting widespread discontent with her stewardship of the agency, the Journal said.

A key point of contention has been Noem's decision to allocate approximately $200 million for a taxpayer-funded advertising campaign urging undocumented immigrants to self-deport, with promotional materials prominently featuring the secretary herself. White House aides said the president had long viewed the effort as overly self-promotional.

During the hearing, Noem claimed that Trump had approved the campaign in advance - a claim that drew further ire from the president, who has told advisers and others that he did not sign off on it.

Adding to the tensions, Noem was grilled Wednesday by House Judiciary Committee members over rumors of a romantic relationship with Corey Lewandowski, a longtime Trump ally who serves as an unpaid adviser at the department. 

The Daily Mail has reported that Noem and Lewandowski, both married, have been engaged in an extramarital affair - a claim they have repeatedly denied.

In a heated exchange, Rep. Sydney Kamlager-Dove (D-CA) point blank asked Noem under oath if she was engaged in sexual relations with Lewandowski. 

A furious Noem refused to directly answer, calling the question "tabloid garbage" and "offensive." When pressed further, she reiterated that it was "garbage."

get a load of Kristi Noem's facial expressions as Rep. Kamlager-Dove enters articles in the congressional record with headlines like, "Lewandowski taking out trash at Noem's DC home" and "ICE Barbie's mile high private chamber with alleged lover exposed" pic.twitter.com/FGRMdZ6K3I

— Aaron Rupar (@atrupar) March 5, 2026

Meanwhile, NBC News reports Trump has begun soliciting suggestions from aides and Republican lawmakers on Capitol Hill for potential successors. Among the names that have surfaced in White House conversations are Republican Sens. Markwayne Mullin (R-OK) and Steve Daines (R-MT),who announced Wednesday that he will not seek reelection, according to NBC News. 

Noem made headlines last week when she claimed that DHS staffers had installed spyware on her phone and computer, as well as on devices belonging to other political appointees.

“You wouldn’t even believe what I’ve found since I’ve been in this department,” Noem told conservative podcaster Patrick Bet-David.

Noem said she discovered the spyware last year with the assistance of former DOGE chief Elon Musk and his team.
Noem then told Bet-David that the secret files were turned over to attorneys for review.

The DHS secretary went on to say she has seen “eye-opening” data from Customs and Border Protection (CBP) and the National Laboratories regarding the scientists who traveled to the infamous Wuhan Institute of Virology in China to conduct gain-of-function experiments on coronaviruses.

“It was eye-opening,” she said.

Tyler Durden Thu, 03/05/2026 - 13:39

Oracle Prepares To Axe Thousands Of Jobs In New Layoff Round

Shares of Oracle moved lower in New York shortly after lunchtime after Bloomberg News reported that the company is preparing to lay off thousands of workers as it spends aggressively on AI data center buildouts. The timing is not ideal: credit markets are starting to crack, concerns about Blue Owl are mounting, and the data center CapEx boom is looking increasingly frothy.

The planned cuts will affect divisions across the company and may be implemented by the end of this month, according to the outlet, citing people familiar with the matter who asked not to be named. Some of the cuts will target jobs that AI will replace, according to two people familiar with the plans.

Wall Street analysts forecast that the cloud unit's data center spending will drive Oracle's cash flow negative through the end of the decade, with a payoff not expected until 2030. Oracle has said it may raise up to $50 billion this year through debt and equity to fund data center buildouts.

This week, Oracle internally announced that it would review many of the open job listings in its cloud division, effectively slowing or freezing the hiring process, according to the sources.

Separately, Oracle previously disclosed its largest-ever restructuring plan, up to $1.6 billion in the fiscal year ending May (including severance). That disclosure helped push ORCL CDS wider, and the spread has since blown out to its widest level since the 2008 financial crisis.

It seems as though the stock has a lot of catching up to do.

The latest Bloomberg data show the company has 162,000 employees globally as of the end of May 2025. There is no definitive number on how many workers will be laid off in the coming weeks. The people Bloomberg cited said these plans are still active and could change.

We can certaintly call a top in the number of Oracle employees this decade. 

Tyler Durden Thu, 03/05/2026 - 13:30

Stocks Tumble On Report US Plans Licenses For Global Chip Exports

In addition to real war with Iran, Trump appears set to restart the simmering trade war with China. 

According to Bloomberg, US officials have written draft regulations that would restrict AI chip shipments to anywhere in the world without American approval, giving Washington broad control over whether other countries can build facilities for training and running artificial-intelligence models, and under what conditions. In other words, while Nvidia has long been the world’s AI kingmaker, now the Trump administration is considering taking a formal role in the industry that would include similarly sweeping powers.

If the rule passes, companies would need to seek US permission for virtually all exports of AI accelerators from the likes of Nvidia and Advanced Micro Devices, which represents a global expansion of curbs that currently cover around 40 countries. 

According to the report, the specific approval process would depend on how much computing power a company wants.

Shipments of up to 1,000 of Nvidia’s latest GB300 graphics processing units, or GPUs, would undergo a fairly simple review with certain exemption opportunities. Companies building bigger clusters would need pre-clearance before seeking export licenses. They could face conditions such as disclosing their business models or allowing the US government site visits, depending on the specifics of the data centers in question.

For truly massive deployments - more than 200,000 of Nvidia’s GB300 GPUs owned by one company, in one country - the host government would have to get involved. For context, 200,000 GB300s is the number that NScale, a UK company that specializes in renting AI chips to third parties, is planning to provide to Microsoft Corp. across four sites in the US and Europe. The firm described this deal as “one of the largest AI infrastructure contracts ever signed.” 

The US would only approve such exports to allies that make stringent security promises and “matching” investments in American AI, the people said, noting that the draft rule doesn’t specify an investment ratio.

The news promptly sparked a selloff across the semiconductor space, with Nvidia and AMD both tumbling alongside the broader semiconductor space...

... which in turn dragged the S&P and pretty much everything else - including Treasuries - to session lows.

Tyler Durden Thu, 03/05/2026 - 12:54

Energy Expert Warns UBS Just How Many Weeks A Hormuz Shutdown Would Send Markets "Out Of Control"

It is only the sixth day of Operation Epic Fury, and roughly the fourth or fifth day that commercial traffic through the Strait of Hormuz has been paralyzed (except for one Chinese-linked bulk carrier), whether by IRGC drone threats or by insurers suspending vessel coverage, and already energy economist Anas Alhajji warned on a webinar with top UBS analysts that "if this is going to last for four weeks, that's where things will be completely out of control."

Bhanu Baweja, Chief Strategist at UBS, asked Alhajji on the webinar: "How many days would the Strait of Hormuz need to remain shut for us to see a non-linear move in oil, with prices rising to $100 or $120 per barrel? Is there a timeline you can give us?"

Alhajji responded, "Our main scenario is that if this lasts four weeks, things will be completely out of control. And when I say out of control, I mean that even if China starts releasing oil from its inventories, the problem is that my guess is China would also restrict exports, which means that oil would remain in China. We were counting on that oil being in the market, and now it is not going to be in the market."

He continued, "The impact of the U.S. SPR is limited. Saudi Arabia is completely out of the picture. All of that spare capacity in OPEC is out of the picture. So what do we do? We are then left relying on demand destruction to curb prices. And because of the panic buying, prices would go above $100 easily in this scenario."

Alhajji warned about panic hoarding in the oil market. He said he questioned back in January why the Trump administration was hoarding Venezuela's oil after the Maduro raid, instead of bringing it to market.

Alhajji then emphasized, "I'm not talking about conspiracy theories. We were criticizing the Trump administration, companies, and trading houses that bought Venezuelan oil, and asking why they weren't able to sell it to end users and why they were hoarding it. Now we know." He was implying that this hoarding was in preparation for Operation Epic Fury.

Earlier in the webinar, Alhajji outlined critical questions:

• Is the war about Iran's nuclear program, or is something much larger at play, with Iran serving more as a trigger or for broader strategic objectives?

• The distinction matters significantly because the medium- and long-term outcomes would look very different.

• Should attention be focused narrowly on Iran's nuclear program and regime change, or should the situation be analyzed within the much wider context of China, trade wars & tariffs, AI competition, Panama Canal, Red Sea, Venezuela, Syria, & Greenland?

• Are we observing "conflicts" within a larger "CONFLICT," where some groups are opportunistically exploiting the situation to pursue their own "local" objectives?

As well as the problem:

• The problem now is attacks that spark panic buying while Saudi Arabia cannot react. Thus, U.S. SPR release is limited, and China might ban exports. Prices would go above $100 easily, but fear would contain demand growth, limiting the increase in oil prices. The impact on LNG and NGLs is higher than on oil.

• We cannot go back quickly to normal. It will take at least 2 months if the war stops tomorrow. (logistics and technical issues)

• Lack of international cooperation (Every country for itself)

Who benefits from the Middle East in flames?

• The US and Russia benefit the most.

• Losers are the rest of the world, with the EU, India, and Arab Gulf countries losing the most.

• China is prepared for the short run. If the war lasts months, China will be among the biggest losers.

Related:

• The Most Important Number For The Market: "25 Days"

The key question for readers is whether President Trump's Operation Epic Fury has effectively triggered an energy shock that, while not explicitly aimed at China, hits Beijing the hardest. It appears as if energy markets remain disrupted for at least a month, then the real issue is whether Asia's energy shock morphs into a financial crisis.

Tyler Durden Thu, 03/05/2026 - 12:53

Kharg Island Back In Focus As Seizure Talk Enters Mainstream Media Debate

Update (Thursday):

On the sixth day of the U.S.-Israeli Operation Epic Fury against Iran, seizing Iran's main crude export hub has entered the discussion in corporate media.

Former U.S. Special Envoy for Ukraine Gen. Keith Kellogg joined Fox News and discussed the seizure of the single biggest energy and financing choke point of Iran: Kharg Island.

"What I would hope they would do is really go and take Kharg Island. If you take out that island, that's 80% to 90% of the petroleum usage the Iranians have," Kellogg told the Fox host.

He continued: "You basically shut them off economically. They cannot support China. They cannot support Russia. Sooner or later, the other side is going to realize this is bad news."

Keith Kellogg on Iran:

We should take Kharg Island. pic.twitter.com/d8bERIU8ZL

— Clash Report (@clashreport) March 5, 2026

We first posed the question on Wednesday: once the military planners behind Operation Epic Fury (a campaign likely planned for at least a year, if not longer) finish degrading the IRGC's air, ground, and maritime capabilities, what comes next?

Our base case is that the next phase targets regime funding channels, and the highest-value energy node is Kharg Island.

It's only a matter of time before the Kharg Island discussion goes mainstream. Mentions across corporate media stories (via Bloomberg data) have begun to surge.

"Kharg Island handles up to 90% of Iran's oil exports. Is President Trump thinking about seizing it?" Eurasia Group's Ian Bremmer asked on X.

kharg island handles up to 90% of iran’s oil exports.
is president trump thinking about seizing it?@gzeromediapic.twitter.com/wczuNBr3o3

— ian bremmer (@ianbremmer) March 4, 2026

Latest on Polymarket: Will the Kharg Island oil terminal be hit by March 31?

Kharg Island is now entering the mainstream conversation.

*   *   * 

Defense Secretary Pete Hegseth said earlier that the U.S. is "accelerating, not decelerating" Operation Epic Fury, with U.S. and Israeli forces conducting at least 1,000 strikes over five days against high-value IRGC assets and leadership. As those strikes have significantly degraded the IRGC's capabilities on land, at sea, and in the air, the next big question is whether Iran's energy infrastructure will become the conflict's next major focal point, especially as the Strait of Hormuz remains paralyzed and Beijing grows increasingly concerned about disruptions to its cheap Iranian crude imports.

Operation Epic Fury has targeted key IRGC leadership, military support networks, and financial infrastructure, severely degrading core pillars of the regime. The next phase to watch is whether the Trump administration and Israel will move against Iran's critical oil and gas infrastructure, which remains both the regime's economic lifeline and an important source of cheap crude for China.

What comes to mind first is Iran's main crude export terminal in the Persian Gulf, called "Kharg Island." Think of it as Iran's oil jugular.

Reuters reports that about 90% of Iran's crude is exported via Kharg Island, located off the country's southern coast in the northern Persian Gulf, in Bushehr Province, about 34 miles northwest of the port of Bushehr.

Kharg Island is Iran’s jugular.

80-90% of Iran’s crude exports flow through this supertanker terminal in the Persian Gulf. No Kharg, no oil revenue. No oil revenue, no regime. Every war plan, every sanctions package, every naval deployment in the Gulf orbits this one fact. https://t.co/E0mVmlC9ea pic.twitter.com/mRuT3gTY1s

— John Ʌ Konrad V (@johnkonrad) February 28, 2026

The latest from Bloomberg reports that Iran continued loading crude onto tankers at Kharg on Monday, despite U.S. and Israeli strikes on IRGC targets countrywide. It remains unclear whether the loading terminal will still be operational through the end of the week, given that the Strait of Hormuz is paralyzed and that any shadow tanker carrying Iranian crude through the chokepoint could be targeted by U.S. and allied forces.

One observation is that the Trump administration and Israel may be deliberately preserving operations at the Kharg loading terminal. If military planners had intended to immediately sever the regime's funding pipeline, the terminal likely would have been among the first targets of the operation. This suggests that allied forces may be keeping the facility intact for the country's next leadership.

Kharg is by far the most strategically important economic target. Iran’s regime depends upon it. If we want to break their will, it obviously should be impacted. https://t.co/IBB1Zg8kFP

— David Asher (@dasher8090) June 14, 2025

"Kharg Island handles up to 90% of Iran's oil exports. Is President Trump thinking about seizing it?" Eurasia Group's Ian Bremmer asked on X.

kharg island handles up to 90% of iran’s oil exports.
is president trump thinking about seizing it?@gzeromediapic.twitter.com/wczuNBr3o3

— ian bremmer (@ianbremmer) March 4, 2026

Our view is that if the Trump administration intends to push forward with a new government, Kharg Island's oil and gas infrastructure is unlikely to be destroyed. Notably, it has remained untouched in the first five days of the conflict. If it is destroyed, China would be furious.

Tyler Durden Thu, 03/05/2026 - 12:40

The Spell Of Woke Is Broke: Let's Keep It That Way

Authored by Thomas F. Powers via American Greatness,

It is too early to know with any precision what the long-term effects of the Trump administration’s anti-DEI efforts will be. We might take our bearings on that score by considering the fate of essays written by prominent law professors in the 1950s and 1960s touting this or that discrete step in the unfolding of the civil rights revolution—the latest Supreme Court decision, and so on—as if each were an all-or-nothing earth-shattering decision.

What we can now say with certainty is that what the Trump administration has done on the DEI front represents the beginning of a general reorientation of our politics away from wokeness. One need only survey what prominent leaders of the Left are saying about the political price the Democratic Party has paid on that score. What they are saying indicates a large political change, even if the Dems prove incapable of unmooring themselves from woke politics for the near future.

The first sign of this reorientation is a general shift in the popular mindset: the spell of woke politics has broken. This matters because it was always the way in which woke politics commanded assent in the citizens’ hearts and minds that was crucial. That assent has been questioned or denied now in a broad way, with the backing of public authority (Supreme Court decisions, executive orders, agency directives), and with widespread public support. Wokeness’s public hectoring, punitiveness, and censoriousness, and the extremism of many of its positions on the issues, is unpopular at the level of 70–30 or 80–20 opinion poll divides.

We ought to be confident, therefore, that the broken spell of wokeness augurs a permanent shift in our public life. What that means precisely, however, depends very much on how we understand wokeness and what is done going forward to ensure that woke excess does not return. Now, if, as many say, wokeness was the product of cultural Marxism (Christopher Rufo and a host of followers) or postmodernism (Jordan Peterson and another host of followers), then all that needs to be done is to combat bad ideas. On these interpretations, our universities in particular, and other cultural institutions where the influence of such ideas holds sway, need our attention. Certainly, cultural Marxism and postmodernism represent bad ideas, and the world would be a better place without their influence.

But if what wokeness represents above all is the explosive power of the civil rights revolution and the influence of an aggressive leftist interpretation of anti-discrimination politics, as another band of interpreters claims (I among them), then the task ahead is much bigger and much more difficult.

Trump’s anti-DEI measures, on this view, would represent only the first step in a broader campaign of civil rights reform. One could look long and hard without seeing much in the way of evidence for any such thing so far. Are these current efforts against DEI an illusion, a brief moment of political opportunism that will recede as public hatred of wokeness recedes—only to return in a few years when the next wave of anti-discriminatory passion rises up?

I don’t think that worry is justified. The anti-DEI campaign to date will have enduring consequences because even if it is not yet clear that what is at stake in DEI is civil rights politics, the current reorientation can only have the effect of raising our awareness of the role of anti-discrimination in our public life. This has begun on the all-important moral plane of civil rights politics. Precisely by breaking the spell of its puritanical commands, our anti-woke moment is reworking something essential to civil rights politics. Because public morality is the crucial filter of the human mind, a shift at this level will change what we see, what we think, and what we think we can say. Anti-woke sentiment, backed by changes in the law, is providing a moment of political, cultural, and mental freedom that will necessarily lead, after many decades during which this was not possible, to a general reappraisal of the moral power and the meaning of the civil rights revolution.

Morality, the Problematic Core of Anti-Discrimination Politics

The civil rights regime was always a collection of disparate, crucial elements. anti-discrimination politics began with the discrete groups who claim its protections (by now an overwhelming majority of the population), but it has been bolstered by laws and institutions and by a set of supporting “ideas” (critical race theory, postmodernist “difference” theory, critiques of “prejudice” by sociologists and anthropologists in the early twentieth century, e.g.). Its modes and orders have been advanced further in a hundred independent corollary efforts of cultural change throughout modern life (in the professions and in the domains of art, literature, and the like).

But central to the whole has always been the moral claim of the fight against discrimination. That moral claim has always been essential to civil rights politics and explains its great power in modern life.

Morality is crucial to anti-discrimination for a very simple reason: our perception of “discrimination” is a perception of an injustice. Indeed, what we mean politically by “discrimination” is always “unjust discrimination.” All human beings discriminate among classes of things, conceiving of better and worse, all the time; whenever we say “that’s discrimination” in a political sense, however, what we always have in mind is some kind of unfair or unmerited discrimination or negative judgment.

At the very beginning of anti-discrimination, we of course confront a form of unfair or unjust discrimination against blacks in America that any fair-minded person can very easily see was outrageous. Any decent person will say that an individual ought to be judged by the content of his character, not by the color of his skin. Anti-black discrimination in America was also extremely harsh and harmful, entailing a wide array of harms, ranging from minor indignities all the way up to violence and homicide. Americans were powerfully reminded of the profound injustice of American racism at the moment of their great moral triumph over Hitler and Nazism, which revealed the full scale of the horror of the Holocaust.

The moral power of civil rights politics played a decisive role in the 1950s and 1960s when the anti-discrimination regime was launched. It is true that the American liberal democratic tradition had long expressed a certain wariness of moral crusades (like Prohibition or, before that, religious puritanism). Only a moral force of immense power, of the sort the civil rights revolution was, could overcome our hesitations along those lines. The only real parallel to the civil rights effort was the attempt a century earlier to deal with American race discrimination’s father, or grandfather, slavery, in the Civil War, the bloodiest war in American history.

Victims of discrimination now carried a moral claim that could be used to demand attention from others. This moral starting point was supercharged and made hyper-spirited because, not entirely by conscious design, anti-discrimination enforcement came to institutionalize a hybrid of the civil law and criminal law. Policing harassment and discrimination borrows from the spirit of the criminal law at crucial points (naming offenders and victims, enlisting government prosecutors, paying close attention to intent and “motive”) but with the legal instrumentalities of tort law (looser procedures with lower standards of protection for the accused).

One consequence of this hybrid quasi-public, quasi-private legal structure was that enforcement of the machine could be handed over to employers, educational establishments, and other large (private or public) institutional entities acting in their capacity as “employers.” Enforcement was then implemented by our fellow citizens, acting under a sanction that was rooted in the law but not evidently or obviously “official” or governmental. The overall result was that anti-discrimination enforcement became a way of policing in an effective and relatively intimate way a significant portion of our social interactions, interpersonal behavior, and private speech—and policing how people treat one another is very much a matter of basic morality.

It was into this social domain that civil rights law, invited in by all-too-willing fellow citizens (bosses, deans, HR managers), imported the punitive and blame-casting spirit of the criminal law. At least as important, these individuals wielded the crucial coercive “corrective measure” of this privatized enforcement regime, above all, the firing of individuals. Punishment thus completes the picture for anything in the ballpark of “harassment”—and also for actions like demonstrating recalcitrance to the demands of the new order.

A New Morality?

As important as the victim/perpetrator injustice claims have been to the moral hold of civil rights politics, the morality of the anti-discrimination revolution is more complicated than that; moreover, its various claims are stated in much more precise terms. Indeed, a whole new system of public morality emerged out of the civil rights revolution.

To elaborate on this in detail would take more space than I have here, but in brief, a new terminology has emerged to clarify the harm of discrimination and to articulate the steps that must be taken to eradicate it. “Identity” is a vitally important term today because it names with some precision what it is in the individual that is threatened by group-on-group discrimination. “Respect” must replace mere “toleration” as a standard of interpersonal treatment because toleration is consistent with some kinds of discrimination (especially discrimination in the private sector). Claims from both identity and respect show that civil rights politics is thus necessarily a politics of “recognition.” New schemes of representation come into view as necessary as well—new, more “inclusive” schemes that reflect the “voices” of those previously excluded by discrimination. And, last but certainly not least, a host of new equality claims—systemic, structural, societal—call into question noticeable inequalities affecting the groups protected under anti-discrimination law. Such claims are now advanced under the heading of “equity.”

A whole new civic morality has thus emerged out of the political upheaval of the civil rights revolution; shamefully, our political scientists have nothing to say about this massive and astonishing fact of our public life.

It is the morality of civil rights as interpreted by the Left that supplies the key “ideas” that are at the core of the woke outlook—and not, I would insist, cultural Marxism or postmodernism or cultural relativism, and so on. To be sure, “ideas” there are here aplenty—identity, inclusion, recognition, respect, equity, etc.—but they are all ideas with a very simple and clear political origin. The lesson for us here ought to be this: political history as the cause of ideas, not intellectual history as the cause of politics.

One additional step remains: it is above all the moral logic of civil rights politics that must be “taught,” as a semi-official catechism, by way of the public and private enforcers of the regime, through things like diversity training, Title IX training, anti-bullying training, and the like—and with punitive sanctions for those who do not want to go along.

The moral power of the anti-discrimination revolution helps to explain how it could grow and grow, more or less unchecked, to the point where it became the monstrous woke regime against which the people have finally rebelled. This explains, too, why the American Left thought for so long that the Democratic Party could ride an anti-discrimination coalition to enduring political victory. Because of its moral content, the anti-discrimination regime—its groups, its laws, its ideas, its institutions, public and private—all seemed unquestionable, simply above criticism.

Our Doubts About the New Morality

What is crucial about the current moment is that anti-DEI sentiment extends to a new wariness concerning precisely the moralism of wokeness. Americans are heirs of the Enlightenment and heirs of liberal democratic constitutional government, and they have not entirely forgotten the suspicion of any politics that claims too much in the name of high and lofty ideals, religious or secular.

It’s true that almost no one is saying publicly that anti-wokeness is really at bottom opposition to civil rights moralism. But one need only consider in rough outline what it is that public anti-woke ire expresses in order to see why that is the case.

We don’t see this, however, and that is because the great moral power of civil rights still does its work to halt us from facing the enormous consequences of the social-political revolution that has taken place in its name. This is something that we see today, even in the Trump administration’s very effective anti-DEI measures. This is a huge effort of civil rights reform, in fact, unprecedented in its sweep. But does anyone call it by that name?

What is needed is a fuller and franker facing of the hold the civil rights revolution has on us. The greatest obstacle to that is its moral hold. How, then, to start to challenge—or at least to begin to think clearly about—something as important to American life as the morality of anti-discrimination without going off the deep end into a world that would welcome back discrimination of the kind American blacks endured before the 1960s. That is a price we cannot pay.

One answer is to begin to look at, to see, the civil rights revolution in its many conflicts with another morality that has great power in America—namely, the morality of the liberal democratic constitutional tradition. And when one begins to look on that level, there are indeed many, many conflicts between the logic of anti-discrimination and that older moral-political outlook.

Looking at anti-discrimination (as a whole) from the perspective of liberalism (as a whole), we will perhaps be able to begin, finally, to see the anti-discrimination regime as a distinct entity. We will, at the same time, be unable not to notice the many lines of tension between these twin poles of our moral-political order. That ought to free us up to start thinking more clearly about the relationship between them. Questioning one’s civic morality is not something to be embraced lightly, but fortunately for us in this situation, questioning one set of our moral categories may be done with a view to another, healthier, set.

* * *

Thomas F. Powers is Visiting Lecturer at The Center for Civics, Culture, and Society at Cleveland State University and author of American Multiculturalism and the Anti-Discrimination Regime (St. Augustine’s Press).

Tyler Durden Thu, 03/05/2026 - 12:35

Israel Targets Iran's Protest-Crackdown Forces With New Airstrikes

Israel is striking Iran’s internal security apparatus in an effort to weaken the regime’s ability to suppress dissent and potentially open the door to a popular uprising, according to the Wall Street Journal.

Israeli airstrikes on Wednesday targeted figures and facilities tied to domestic repression, including members of the Basij paramilitary and senior intelligence officials, the Israeli military said. Israel and the U.S. have also hit internal-security institutions such as the Tehran headquarters of the Islamic Revolutionary Guard Corps (IRGC), which plays a central role in protecting the regime.

The IRGC and Basij led the violent crackdown on antigovernment protests in January, when security forces fired on demonstrators and killed thousands. Police and intelligence agencies also detained large numbers of protesters.

Israeli officials say the goal is to weaken Iran’s coercive apparatus from the air so citizens can challenge the government on the ground. Analysts caution that airpower alone may not bring down the regime.

“If the bet is that airstrikes will finish the job from above while Iranians complete it from below, it’s a bet that rests on no clear historical model,” said Ali Vaez of the International Crisis Group. “It also ignores the resilience of entrenched authoritarian systems like the Islamic Republic.”

The Wall Street Journal writes that recent strikes targeted dozens of internal security facilities, including the IRGC’s Tharallah headquarters, which coordinates intelligence, policing and Basij units during unrest. Israeli jets also hit the police special-units command, Faraja, responsible for riot control. Iran later confirmed the death of Faraja intelligence chief Golamreza Rezaian.

“These bodies were responsible for, among other things, suppressing protests against the regime through violent measures and civilian arrests,” the Israeli military said.

Joint U.S.-Israeli operations have also focused on western Iran’s Kurdish regions, long known as opposition strongholds. Rights groups reported strikes on police and detention sites in the Kurdish city of Sanandaj.

The conflict comes amid growing unrest inside Iran driven by economic hardship, political grievances and anger over the January killings. More than 7,000 people have died in the unrest, according to Human Rights Activists in Iran.

Still, the government retains a near monopoly on weapons across most of the country, and Basij patrols continue. Civilian casualties from the conflict—over 1,000 so far, including 180 children—could also strengthen hardline support for the regime.

Former President Donald Trump has urged Iranian security forces to defect. “I urge the IRGC, Iranian military, police to lay down your arms and receive full immunity or face certain death,” he said Sunday. “It will be certain death.”

Tyler Durden Thu, 03/05/2026 - 11:40

Debate: What Should Trump Do Now In Iran?

LIVE NOW: 

https://t.co/OMGDXCGANP

— zerohedge (@zerohedge) March 5, 2026

***************************

Tonight at 7pm ET on the ZH homepage, we host a debate on the ongoing war with Iran.

Joining the discussion:

• Curt Mills, executive director of The American Conservative, the magazine founded by Pat Buchanan and a prominent voice for the original America First right.
   
• Max Abrahms, Northeastern University professor and widely cited scholar on terrorism and international security.

Moderating the discussion is Bret Weinstein, evolutionary biologist and Dark Horse host.

Mills follows in Buchanan’s footsteps, who was early to sound the alarm about the United States being dragged into “Israel’s war”:

American Conservative co-founder Pat Buchanan has warned against conflict with Iran for decades:

"The Neocons want the United States to fight Israel’s war against Iran. And the Israelis want us to fight Iran as well. But it’s not in the interest of the United States.” pic.twitter.com/8o1XRGlTFt

— The American Conservative (@amconmag) March 1, 2026

While Mills sees Israel as the largest thorn in the side of America and the chief cause behind Trump’s abandonment of his pro-peace promise, Abrahms sees Turkey as the “most annoying country for US national security goals in the Middle East”:

Turkey is the most annoying country for US national security goals in the Middle East.

Remember, in Syria, the role Turkey played creating the Islamic State caliphate. Turkey allowed all the foreign fighters into Syria. It also supported Al Qaeda-laced “rebels” who refused to…

— Max Abrahms (@MaxAbrahms) March 4, 2026

Abrahms is a staunch zionist though not nearly as radical as Senator Lindsey Graham (who is already advocating for Trump to bomb Lebanon). While broadly supportive of the stated goals of weakening Iran’s missiles and navy, Abrahms recognizes that regime change is too ambitious:

The success of the Venezuela operation gave Trump a false sense of confidence about regime change with Iran.

— Max Abrahms (@MaxAbrahms) March 5, 2026

Tune in tonight at 7pm ET here on the ZH home or X feed.
 

Tyler Durden Thu, 03/05/2026 - 10:55

The post Little Boy Trump Goes to War appeared first on CEPR.

Iran Says Strait Of Hormuz Open As China-Linked Ship Transits Maritime Chokepoint

"Some are criticizing us [Iran], saying that we have closed the Strait of Hormuz. We do not believe in closing the Strait of Hormuz at all," Iranian military commander Amir Heydari told Iranian state TV on Thursday.

Iran military says it has not closed Strait of Hormuz.

"We do not believe in closing the Strait of Hormuz at all,” military commander Amir Heydari tells Iranian state TV

Let's see what the IRGC has to say about it.

— Javier Blas (@JavierBlas) March 5, 2026

The first sign that the critical maritime chokepoint was partially open came late Wednesday night, when we were among the first to report that a China-linked bulk carrier exited the Strait of Hormuz without incident, a notable development given earlier reports and market chatter that Iran might allow only Chinese-linked ships to transit.

Shortly after our report that the Iron Maiden vessel made it through the narrowest part of the waterway unharmed, Bloomberg also reported on the development, noting that the ship had changed its destination signal to "CHINA OWNER."

Latest activity in the Strait.

Earlier this week, Iran's IRGC said that any vessel sailing through the waterway "could be at risk from missiles or rogue drones," according to the semi-official Fars News Agency.

China has urged peace and called for an immediate ceasefire to the U.S.-Israeli Operation Epic Fury to "prevent further escalation of tensions and stop the conflict from spreading and engulfing the entire Middle East."

Everyone knows why China is calling for peace: the Strait of Hormuz and Iran's cheap oil flows have effectively been closed to the world's second-largest economy, and that pressure is likely to be used as leverage by President Trump in his upcoming visit to China.

• China Failure To Help Iran Raises Eyebrows Despite Strait Of Hormuz A "Critical Choke Point" For Beijing

• China Panics, Urges Ceasefire To Reopen Strait Of Hormuz As Beijing Is Addicted To Cheap Iranian Crude

• China Halts Diesel, Gasoline Exports As Paralyzed Hormuz Risks Energy Shock

Trump has said the U.S. will offer insurance for tankers transiting the Strait of Hormuz and, if necessary, provide naval escorts to help restart energy flows as the commercial shipping lane remains heavily disrupted.

Beijing is likely asking this question:

• Will Trump Seize Or Destroy Iran's Oil Export Island?

Even with ten or more tankers and other vessels reportedly hit by IRGC drones in or around the Strait, intelligence and military analysts told Reuters that the IRGC could sustain drone attacks in the waterway for months. The Strait has not been fully closed, in part because the Trump administration spent the week degrading Iran's naval capabilities, but the disruption is still severe because major European and global insurers have abruptly pulled or canceled war-risk coverage for the region.

Tyler Durden Thu, 03/05/2026 - 09:25

 

 

In a special bonus episode, I speak with Bill Gurley of Benchmark about his big bets investing early in now-common names like Uber, Zillow, Grubhub, OpenTable and others, plus his new book, “Runnin’ Down a Dream: How to Thrive in a Career You Actually Love“.

He explains that the early days of venture capital were organized more like a law firm or accounting shop; Benchmark created a unique, team-based approach. Gurley credits the huge success Benchmark enjoyed to this structure.

A transcript of our conversation is available below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Ed Perks, president of Franklin Advisers and chief investment officer of Franklin Income Investors. He serves as lead portfolio manager of Franklin Income Fund, as well as Franklin Managed Income Fund. He is a member of the Franklin Templeton executive committee, a small group of the company’s top leaders responsible for shaping the firm’s overall strategy.

 

 

 

 

 

 

 

Transcript:

Announcer: Bloomberg Audio Studios, podcasts, radio News. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

Barry Ritholtz: This week on the podcast, what can I say, another banger. Bill Gurley of Benchmark Capital. Legendary VC, early investor in Uber, Zillow, OpenTable, GrubHub, Nextdoor, Instagram, Twitter. The list just goes on and on and on. What a fascinating career filled with insights, not only about venture investing, but about building a career that you love. I thought this conversation was fascinating and I think you will also, with no further ado, my conversation with Benchmark’s Bill Gurley.

Barry Ritholtz: Before we get into the book, which I found very interesting and your whole career. Let’s start with your background. You get a bachelor’s in computer science from the University of Florida. And then an MBA from UT Austin. What was the original career plan?

Bill Gurley: So I fell in love with computers at a young age. And many people that get to Silicon Valley, you hear that common refrain. I had a Commodore Vic 20 that would plug into your television and it didn’t have solid state memory, so you’d type programs in, but when you turned it off, done, they were done. You had to start over. Anyway, I fell in love with programming as many people do, and just amazed that you could create things, you know?

Bill Gurley: And so that was my undergrad degree. I worked for two and change years at Compaq Computer Corporation, using those skills and discovered that that wasn’t gonna be my long-term path.

Barry Ritholtz: You said you were exceedingly bored at what looked like on paper a dream job. Explain.

Bill Gurley: Well, back then Compaq was a leader in the personal computer business, and we would release one PC and then usually around an Intel generation. You would reach the next PC. And so the, we started on the third project. That was a lot like the second and a lot like the first, and I asked myself a question. I asked myself the question, is this what I want to be doing 30 years from now? And in any organization there’s someone that’s a lifer, that you can ask yourself, is that what I want? And with no judgment towards people that do that. But it became very clear that that wasn’t for me. And this would be particularly interesting for your audience ’cause it’s an investment crowd. At home at night, I had One Up on Wall Street by Peter Lynch. And I had opened a Prodigy account, which was this precursor to AOL and I was starting to get really interested in stocks. I had bought the Value Line. You remember this thing?

Barry Ritholtz: Oh, sure. Came the big notebook with the one pagers, the updates and the three ring binders.

Bill Gurley: Exactly. And like a whole shelf of alphabetical. And one thing I’d really encourage people to think about is, what are you doing in your free time? And maybe, is there a clue that that should actually be what you do full time? And so this thing was itching at me.

Barry Ritholtz: So first gig in finance, was that Deutsche Bank?

Bill Gurley: No, it was Credit Suisse First Boston. So I, while I was at the University of Texas MBA program, I thought about venture, but it seemed very hard to get towards. I liked technology, I liked disruption, I liked programming. And it seemed hard to get at, but at that time when you get to business school, some young adults like to pretend they’re financiers and so they read Fortune, Forbes, the Wall Street Journal and the Atrium, you know, as if. And I would read the tech articles and there was a team at Goldman Sachs on the sell side. And the sell side I think was more kind of held in higher regards back then. And this team with Dan Benton and Rick Sherlund at Goldman got quoted all the time and I said to myself, you know, I really love my corporate strategy class. I love technology. These people get to opine on it and are treated as experts.

Bill Gurley: So I went to, I came here to New York, I knocked on doors cold. I asked that particular team for a meeting. They let me in. I’m a first year at the University of Texas. They let me in and I told all the other research directors, I’ll be in town meeting with those guys. And I got like 10 meetings doing that. And one of those individuals was Al Jackson. And he gave me a shot. And I can remember the first day of orientation, there were like 40 new people from MBA programs and we had to go around and say our name and school and it was what you’d expect, Columbia, Wharton, Harvard.

Barry Ritholtz: But you were the University of Texas. You’re the odd man out for sure.

Bill Gurley: But I’m so grateful to Al for giving me that shot. The sell side analyst job has one trait that is remarkable, which is you immediately get to start talking to CEOs and CFOs and I don’t know of any other job where that just happens right away, right outta school.

Bill Gurley: So the access was amazing. I ended up getting to cover the industry I worked in, the computer industry. I got to know the team at Dell. This story involves our mutual friend Mike Mauboussin. But because of something Mike taught me, I got very bullish on Dell and it was trading at six times earnings ’cause they had had some issues. I think they had a CFO that was doing some currency swap, they had an options, a currency thing that went wrong. And their laptop caught on fire. And both those things happened at the same time.

Bill Gurley: And Mr. Mauboussin had really gotten into ROIC analysis at that time, one of the first people to really get behind it. And he had me read this book Valuation from McKinsey and the Stern Stewart book. And when I ran those ROIC calculations on all the players, Dell was like, it stood up way above everybody. Way above everybody. ‘Cause they were building to individual order. They weren’t building to inventory. The balance sheet was not tied up at all. They had a positive cash conversion cycle. It was unbelievable. You just had to weather the storm and on the other side.

Barry Ritholtz: But that means you’re buying something?

Bill Gurley: Well, we went strong buy because of this ROIC differential that no one was talking about. Michael kindly tweeted about my book the other day and said he taught us some things we didn’t know ourselves about our business. And it was a great run. I mean, that really launched my career. ‘Cause that stock went up a hundred x.

Barry Ritholtz: In the public market. That’s a home run. That’s a venture-like return from a public company. How did you end up at Deutsche Bank from CSFB?

Bill Gurley: I had the same thing happen one night. I was at Park Avenue Plaza on the 36th floor and I was there at like 10 PM as the young people do. And I walked around and the lifers were in the corner offices and I stopped in front of each of their offices and I said, is this what I want to do the rest of my life? And that night when I walked home, I knew it wasn’t.

Barry Ritholtz: You’re out the sell side.

Bill Gurley: But I loved the sell side. I had a great run, getting access to all those people being here in New York, working on Wall Street as a young person, like, it gave me so much energy and excitement. It’s just a different deal. But I knew it was time and I started looking around, I almost took a job with Capital Group in LA who I still hold in immense regard as an investment organization. And Frank Quattrone called me out of the blue. And Frank was leaving Morgan Stanley, he’s the most notable high tech investment banker of all time. And he sat down with me and we had a very candid conversation. He asked me what I wanted to do long term. And I told him, I said, I’ve come to this conclusion. I don’t want to be a sell side analyst anymore. He said, what do you want to do? And I said, I think I want to be a venture capitalist. And he said, this almost sounds too good to be true. He says, come to work for me for a while. Be a sell side analyst a little bit longer. I’ll move you to Silicon Valley. I’ll put you in the epicenter and I’ll introduce you to every venture capitalist that I know. And he knew ’em all.

Barry Ritholtz: Wow. So he was probably the axe on tech IPOs, certainly one of the top three.

Bill Gurley: And so I took that trade. He did everything he said. I only worked for him for 13 months. And in that window we secured the mandate for the lead left position on the Amazon IPO, which turned out to work out pretty okay. And that’s such a great piece of IPO tech history. If you, no one could name who’s lead left on the Amazon IPO and you can go find, I do this frequently. Go look at the S-1 and it’s Deutsche Morgan Grenfell, lead left.

Barry Ritholtz: Wow. So how did you transition from working with Quattrone at Deutsche Bank to Benchmark? If you’re right in the heart of Silicon Valley, he did what he said. He introduced you to every VC.

Bill Gurley: I was taking, so out of that list, I’m taking quarterly meetings with Benchmark where they’re inviting me into their Monday meeting and we’re just chatting about where the industry’s going. He really did what he said.

Barry Ritholtz: But why Benchmark as opposed to Sequoia, Kleiner Perkins? There are dozens.

Bill Gurley: Well, actually my first offer into venture came from Ann Winblad. And I was so eager to get into venture. When the offer came at Hummer Winblad, I said yes. And I didn’t know what I got involved in. The organization was structured like a very traditional firm where the founders made more equity than the young people. And there was also a bit of a power differential where the person that got to dictate how things went were the elder statesmen. Old school lawyer, accountant type structure. All set.

Bill Gurley: And the Benchmark guys had lived within those frameworks and had decided to do something crazy, which was to create an equal partnership where everyone makes the exact same amount of money and everyone has the exact same power within the organization for decision making and there’s no leader. And I can’t tell you what it’s like to have someone from an organization like that reach out to a young person and say, come on and be a part of this versus the traditional one. Be a partner.

Barry Ritholtz: Although I would imagine the whole eat what you kill ethos could be a little intimidating.

Bill Gurley: Well, but here’s the thing. I think at those hierarchical firms, there’s an up or out mentality. So the people at the bottom live in constant fear of what you’re talking about. And they also get sharp elbow to the side. At Benchmark, these founders were gonna split equally whatever I did. And so what I found was the cultural zeitgeist that came out of that structure is one of immense help and support. And so I immediately had four mentors who had been doing this a lot longer than I did, who were in my corner every single day. And then you get to live through bringing other people in. It’s a wonderful recruiting tool to tell someone you’re gonna be equal, but then you win when they win. And those original Benchmark founders who did very well with their eBay and Ariba investment in Fund One, they all participated in the Uber investment that I brought to the table. And today, Eric Vishria has got Cerebras and I’m gonna benefit from that. And it’s a culture that I think is really great for generational change.

Bill Gurley: And when I talked to LPs about what, I mean the LP doesn’t have much they can control, right? They’re trying to decide and the window for how successful a fund is moving from seven years to 15, like you’re getting past, the time you’re gonna turn around and analyze whether an investor’s any good or not, you’re gonna be retiring. And so what you can study is, do you think the organization has elements that will cause it to be able to succeed with generational change? And I think one of the proudest things of just me serving as part of it is that we were able to move from a place where the founders were the ones behind all the winners to where the next generation was.

Barry Ritholtz: So when you joined Benchmark, I think you were relatively, I don’t wanna say a unicorn, but there weren’t a whole lot of public market research folks in the VC world then. Now it seems that it’s a little more common, but were you a little bit of a one-off when you joined?

Bill Gurley: I know a piece of history that’s probably not well known, but Ben Rosen of Sevin Rosen, who’s not a brand you hear much of anymore, and was involved in Compaq. He was actually the chairman of Compaq. He was a semiconductor analyst in the seventies. So he was the first one, and then after me, and kind of at the same time, Danny Rimer was a sell side analyst. Mary Meeker was a sell side analyst. So there were, the weird thing about venture is if you polled people on their background prior to venture, there’s real diversity. There’s like a whole bunch of different pathways. Mike Moritz was a writer.

Barry Ritholtz: I recall that. There’s a handful of us that came that path. Huh. Really interesting.

Barry Ritholtz: Coming up, we continue our conversation with Benchmark’s Bill Gurley, discussing his new book, Running Down a Dream: How to Thrive in a Career You Actually Love. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

Barry Ritholtz: I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Bill Gurley of Benchmark Capital. He has a new book, Running Down a Dream: How to Thrive in a Career You Actually Love. I love the Tom Petty title. What led you to start with that?

Bill Gurley: I put together back when I was super active writing blog posts, I would keep these notes in digital form, but I would start, I’d probably start three or four times as many blog posts as I finished. And so if an idea popped in my head, I’d just write notes down and see if I went back to it. And that was a note. I had read these three biographies of people that were from very different fields that all started on the bottom rung and became remarkably successful in their field. And I noticed a through line between ’em and I just wrote it down the same way. I would figure out how an internet marketplace company might thrive. Like, oh, do this, this, and this.

Bill Gurley: And I got invited one day back to my alma mater to do a speech at Texas Business School, and I asked if I could do this one. And so then I developed it a little more and I put it out there. They put it on YouTube and a few people noticed. And one of those was James Clear, who wrote Atomic Habits. And I don’t wanna make this sound too mushy, but at some point I decided that it was time to declare victory and hang up my boots in venture. And it was a decision. I spent 25 years in venture capital. I loved every minute of it. It was my dream job, but I wanted to start doing other things. And there’s a great book by Arthur Brooks, From Strength to Strength, that talks about people that reached that stage in life. And it really spoke to me and I decided to push this book out.

Bill Gurley: And two people had really gotten behind me and pushed me to do that. One of ’em was Tony Fadell, who invented the iPod and was head of engineering on the iPhone.

Barry Ritholtz: I knew I recognized that name from, he had a book called Build. He also started Nest.

Bill Gurley: And he told me that it was the best thing that he’d ever done. And that’s kind of hard to believe. And then I was talking to Danny Meyer last night, the famous New York restaurateur and founder of Shake Shack. And he said the same thing. He said the book Setting the Table was more rewarding for him than anything he had done. And I asked him, why is that? And he told a story, this is a very long answer, I’m sorry. He told a story about being in Africa at a hotel and one of the local workers in this restaurant he was in told him, look at how I’m doing the eggs. And it was a technique out of his book Setting the Table.

Barry Ritholtz: Oh, really?

Bill Gurley: And the reach, his argument was the reach that he could get in sharing what he knew via a book was exponential compared to what he could do just opening another restaurant. And that was powerful. Anyway, once again, it sounds maybe a little too mushy or sacky, but if I’d have written a book about being a VC or an investor, there’s only a handful of people it might have touched, and I felt very compelled to share this because I thought it could have a bigger, much bigger reach. Because it’s not just about a career. It could be applied to career in investing, but it’s a much broader book about doing what you love.

Barry Ritholtz: So let’s talk about some of the items from the book, starting with, there’s a stat, I think it’s in the introduction. It’s not even the first chapter. Six in ten people say they’d do something differently if they could start over. That’s a horrifying statistic.

Bill Gurley: Well, we were studying this Gallup poll that said like 53% of people are quiet quitting at work. They’re not engaged or don’t consider themselves engaged at work. And I think other people have echoed those types of thoughts. And on a whim, I was working with a co-writer and researcher. We did a Survey Monkey survey and asked this question, if you could start over again, would you do something different? That one came out seven in ten.

Barry Ritholtz: Wow.

Bill Gurley: We hired Wharton to do an official academic review, and that one came out six in ten. There’s a book by Daniel Pink about regrets called The Power of Regrets, and he says that the regrets of inaction, the stone unturned, the path not taken weigh in our brain. We ruminate far more on those than regrets of action. So we let ourselves off the hook for making mistakes. We’re pretty good at getting past them and moving on. But the thing we never tried, it really eats at us.

Barry Ritholtz: I forget the name of the book. They interviewed a bunch of 90-year-old people talking about their life regrets. And it’s never the commissions or errors, it’s always the things they never did. ‘Cause in your mind, you imagine an entire different pathway.

Bill Gurley: Exactly. And that’s the regret of, and one of the catchphrases we use in the book, which came from my partner Kevin Harvey’s, life is a use it or lose it proposition.

Barry Ritholtz: For sure. Absolutely. So the idea of career regret, you lay out a variety of principles to avoid it, starting with obsessive curiosity. Dive into that. Tell us about obsessive curiosity.

Bill Gurley: All of the people that we studied and what we expanded it from the presentation I gave at the school, and probably read a hundred biographies, but every single one of these people are obsessive learners in their field. And you and I are both, I already mentioned, but you and I are both friends and a fan of Michael Mauboussin. And I don’t think there’s a human that reads more books on finance than Mike. It’s a race between him and Warren Buffett. And he fully synthesizes them. One cheat code if you want to chase a dream job in investing is you could just start by reading Michael’s books because he’s read all the other books and it’d be a great place to start.

Bill Gurley: But I literally have a couple of chapters in here based on his work. That’s ’cause he’s just so seminal in so many ways. And in the book you’ll see examples of Danny Meyer, the restaurateur, Bob Dylan, the folk singer. There’s this part we uncovered. Most people, I’m sorry that the new movie missed this, but you get more of it if you go back to the Scorsese documentary. Some people called him a music expeditionary, so he studied music at a level. No one would know this if they just listened to Dylan, but he is obsessive about learning about the art. And early on they called him a mimic because he was able to parrot every other artist that he studied. And even today, he did a podcast for a while where he went through histories of music. His newer book goes through 50 songs that he thinks changed the world.

Bill Gurley: This study element is just inherent in so many of these people. And what I love about, first of all, I think it is a defining factor of success. Does continuous learning in your field come easy to you? And it’s a great test of whether you’re pointing in the right direction or not, because if it feels grindy to do that, you’re not in the right place.

Barry Ritholtz: That’s right. You need to try some other things. You’re gonna laugh. Every morning I take a quick look at a bunch of headlines and run through and I saw something this morning that said there’s a high correlation between people who read books and longevity. So all these folks chasing down blood treatments and all these longevity things, it turns out just read a couple of books a month, you’ll extend your lifespan. How about that?

Bill Gurley: Really, really interesting.

Barry Ritholtz: So you mentioned Danny Meyer, you mentioned Bob Dylan. Sam Hinkie, the coach is another one. What, when I first got the book, I’m always a little nervous when I get a book and I’m like, oh, this is gonna be preachy and tedious, but it wasn’t. It’s interesting and narrative driven. What led you to the storytelling format of all these people’s life experiences as opposed to the more traditional?

Bill Gurley: Your listeners can’t tell because we’re not on video, but I’m smiling, grinning ear to ear, and I’m so glad you noticed that. So there was quite a bit of intention in that. Just as when I was a computer scientist, I was at home trading stocks as an investor. I developed on the side somehow, I guess through this act of reading, just a super appreciation for really well written nonfiction.

Barry Ritholtz: And there’s actually two books back of the book. You have chapters on all your favorite books.

Bill Gurley: There’s a book called The New Journalism and a follow-up called The New New Journalism. Tom Wolfe put together the first one, the second one is writers people would know more today, that studied the craft of great nonfiction writing. Like that’s what that book’s about. And it covers Lewis and Krakauer and Gladwell and all the books that have done extremely well. And there is a through line in there that storytelling is something that people really love to read. Morgan Housel was on this podcast called Why We Write. And he went on and on about that technique, and I had discovered it as well. And so my co-writer actually does most of his work for The Atlantic.

Bill Gurley: And so every, the book’s divided into two halves. There’s profiles and there’s principles. And if you look at the table of contents, we interleave them, which was a technique I borrowed actually from Michael Dell’s book, where he interleaved two stories in the same book. And the idea there was, there were two things behind that. One, I thought the book would be more readable if it did that. A lot of the books that are the cornerstones of the career category, like Designing Your Life and What Color Is Your Parachute, are structured more like a textbook. And I just felt that if it were more readable, it would be more approachable and more consumable for more people. And then I also, and this goes back to what Morgan Housel was pushing, reading the stories is, I think, puts it in your memory a little bit better than just reading a principle alone.

Barry Ritholtz: Oh, we are geared to remember narratives as opposed to data or dry principles. The intentionality behind telling stories makes it very readable as opposed to, let’s be honest. What Color’s Your Parachute has been in print for, I don’t know, 57 years. Still in the top 10 in the category, but it’s kind of a slog to ply through. It’s like reading a textbook.

Bill Gurley: And when is the test?

Barry Ritholtz: So I have a couple more questions about the book. The book seems to be very much a bit of a pushback to modern hustle culture. Was that on purpose or was it really, Hey, you know, it’s not a grind if you’re really enjoying it and you should listen to your own body’s signals that I’m really hating this, but I’m grinding it out.

Bill Gurley: One fortunate thing in putting this book together is, and I think this is really just easier in the modern world, we were able to connect with some true, amazing leaders in this field. So we ended up talking to Adam Grant and Daniel Pink and Angela Duckworth and people that have really made a name for themselves in this field. We stumbled across a podcast Angela Duckworth had done recently where she was looking back 10 years after on Grit, the book. And the original thesis of grit was you need passion and perseverance. And she said if she were gonna rewrite it, she would maybe instead of 50/50, say two thirds, one third passion. And her fear was that we’ve taught young adults how to grind. And I feel that the evolution of the college matriculation conveyor belt has been negative. I feel like it’s become an arms race to get these kids into the hardest schools. The schools aren’t expanding capacity. So they just keep getting harder and harder to get into. And the kids get taught to fill their schedule with programming so that that resume can be perfect and they’re not given the time to really explore and find, and many people don’t really know what their dream job is. And some of ’em might not find it till they’re 30 or 40, and that’s okay too. But we’ve pushed and pushed and pushed and many of ’em have risen to the occasion of doing all that work, but they graduate from college exhausted.

Barry Ritholtz: You describe this whole section, step off the conveyor belt. I was just watching something about Norway. This tiny little country, yet it dominates the Winter Olympics despite lots of other cold weather countries. And their secret is all these kids are encouraged to join sports as kids. But unlike here, there’s no trophies, there’s no competition. It’s do what you want for as long as you want, as long as it’s interesting. And every one of their medalists say, yeah, I was a slalom skier till I was 14, and then I switched to whatever. But I had the background and it was great. There was no pressure. You could do what you want.

Bill Gurley: It turns out letting kids play is a great strategy. And I’m not the first one to make that point. And there’s a chapter in Coddling of the American Mind titled The Decline of Play. And I do wonder if it’s harder to find your obsession and find this thing that you’re totally fascinated with if you’re stuck in this game not of your own making. And you know, it’s funny. The phone, which is always within reach, means that you’re never bored. But boredom is what leads to creative output, and I’m wondering what this generation is gonna look like down the road.

Barry Ritholtz: Well, hopefully some of ’em will be able to get ahold of this book and find their way to a better place.

Barry Ritholtz: Coming up, we continue our conversation with Benchmark’s Bill Gurley talking about the state of venture capital today. I’m Barry Ritholtz. You’re listening to Masters in Business.

Barry Ritholtz: I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Bill Gurley, his new book, Running Down a Dream: How to Thrive in a Career You Actually Love is out today. He’s also a member of Benchmark Capital, a legendary venture firm. Let’s talk a little bit about some of my favorite Benchmark investments that I seem to use constantly. I think it’s ironic we’re recording this the day after this giant blizzard hit New York. The trains aren’t running. The buses aren’t running. I took an Uber here, so kind of full circle. You are the guy who brought Uber to the public attention, funded it and walked it through the IPO. Zillow I use all the time. OpenTable I have to use a few times a week. Tell us about these giant consumer-facing companies that became wildly successful.

Bill Gurley: So I stumbled upon, and this actually will involve Mike Mauboussin again. Him and I were working together in the research department at CSFB and we became enamored. We became book sharers. And that’s been true for 30 years. But we became enamored with this book Complexity by Mitchell Waldrop about the rise of the Santa Fe Institute.

Barry Ritholtz: Which I know he’s involved in.

Bill Gurley: Yeah, I am as well. And Bill Miller of Legg Mason. Long, long time involvement. Carl Kawaja from Capital Group just joined the board. So there’s a handful of investors that get a lot out of it. But the original book highlighted this guy named Brian Arthur and Brian had done work on what he called Increasing Returns. And they published one of his pieces in Harvard Business Review. It was ironically co-written by Cormac McCarthy, but no one knew it at the time, and that’s come out since then.

Bill Gurley: Anyway, Increasing Returns was this argument that if you have the right pieces in place, your company will accelerate towards winner take all. And when I read that and I started looking at what was capable with the internet and possible, this notion really was prominent in my mind. And I can remember, I think the first one of those that we invested in was OpenTable. And I remember my partners pushing back and saying, selling computer hardware to a restaurant is a crappy business. And SMBs, how we ever scale it. And the idea was, well, if you’ve got all the restaurants on, the consumers would only want to go there. And if you got all the consumers on, the restaurants would feel obligated to be in that place. So there’s no reason to have multiple of these things. And that was a thesis when we made the original bet. We lived through the .com burst and had to grow after that. But it did play out that way. And the network effects were present. And then from there, I started thinking about what other industries would that apply to? And that’s what led to all these other things.

Barry Ritholtz: So OpenTable leads to Uber, leads to Zillow. Is that the progression?

Bill Gurley: Yes, absolutely.

Barry Ritholtz: ‘Cause you know, it’s hard to argue that those three are pretty indispensable. What about others that stand out? Nextdoor, GrubHub? What else is in that group?

Bill Gurley: Yeah, and Stitch Fix did really well. And in the, you know, also the firm, while I was there, invested in Twitter and Snapchat and so many different companies in the social space, Instagram. I don’t know how we did ’em all.

Barry Ritholtz: Well, you didn’t do ’em all because, first of all, VCs in general do something that I’m very much enthralled with. They’re kind of proud of their failures. Which the rest of finance is sort of terrified of. The idea that, hey, we invested in this, it went to zero. We skipped this, we missed this. A lot of VCs on their websites have, here’s what we blew. Here’s what didn’t work out. You very famously missed Google. What were the lessons from that experience?

Bill Gurley: Well, the, I think the biggest takeaway, which leads to what you just described, Barry, is that when you miss a big winner, it’s very asymmetric to the counterfactual, right? If we invest $12 million and it goes to zero, you lose one time your money. If you fail to invest $12 million in Google, you miss out on a thousand x. And so over the years at Benchmark, I would tell you that I don’t recall very many discussions at all about, oh, that one went to zero. You orient, my partner Bruce came up with this phrase, what could go right? You orient yourself towards the failure being missing out on a huge winner. And so we changed how we, the kind of things that we studied as failure that you want to correct.

Barry Ritholtz: And how different is that an experience and a process from making investments in existing legacy public companies?

Bill Gurley: Well, I don’t think you have the potential for the thousand x’s often, right? And so the thousand x can make up for eight losses that you never heard of. And so it just forces you if you’re in that big game hunting mindset to really, really focus on could this work as opposed to could it fail and only be obsessed about that part. And I think it’s different. I think, and because we are oriented to absorb failure at a level that you can’t do in the public market.

Barry Ritholtz: So you mentioned it’s one in ten. Is it that much or is it closer to one or two in a hundred? For the big, big outliers?

Bill Gurley: Of course, it’s what you’re saying. But one in a hundred could return the fund. You gotta find that one. I mean, think about that. That’s a really weird dynamic to be out there doing.

Barry Ritholtz: So I’m legally obligated to ask you about AI and artificial intelligence. How do you look at this sector? What do you think is gonna happen?

Bill Gurley: One last thing before you go to AI. I think that the venture industry is constantly evolving. And today’s venture industry looks nothing like what I practiced, which looks nothing like what the generation before me saw. It has gotten way more competitive and the best investors have become aware of power laws where these big winners go on forever, and they become these trillion dollar companies. And as a result, they’re very comfortable now betting it forward. And so we have firms like Thrive and Coatue and Altimeter are willing to put big, big checks into private companies in a way they never would have in the past, making the bet that that compounding law is going to keep playing out.

Barry Ritholtz: Huh. So everything’s changed. So that raised a really interesting issue. Benchmark has stayed kind of small. Early, nimble, while a lot of other VCs really beefed up. What is it about avoiding becoming a mega fund, chasing late stage growth that was so appealing to you guys?

Bill Gurley: So one, I do think we’ve reached the point of the industrialization of the venture capital world, and these funds and these assets under management are starting to parallel large PE firms. And I think one, it’s very hard to stay focused on the artisan craft of identifying early opportunities if you’re running this thing that has to look after, it’s hard to get excited about a $7 million investment if you’re managing billions and writing $500 million checks. And you’re earning, by the way, a management fee and a venture carry on the 500. Why would you? You just get oriented differently. And second, I think it’ll be very difficult for those firms that get that big to have IRR that is anything other than industry at best.

Barry Ritholtz: So you’ve been pretty loud about valuation discipline and the risk of having a high burn rate. Is that a function of looking at earlier stage companies or is it just simply an analyst discipline of looking at companies?

Bill Gurley: I think it’s the latter. I think it’s reading all those books, like studying Buffett, Graham and Dodd. Like I brought to the venture capital industry a study of investing history that most VCs never have. And I think it was differentiating for me. Some people call me the VC Cassandra, but that’s okay.

Barry Ritholtz: So you’re, I would think, I think of you as an elder statesman in the VC community. But you’re hinting at something. I’m gonna ask explicitly. What rules have too many venture capitalists not learned that you think would behoove them and their firm to go back to some basics and focus in on that’ll help both their returns, their LPs and their funded companies?

Bill Gurley: The thing I would say to answer that, Barry, is that it’s always going to the, Howard Marks wrote this great piece a long time ago who highlighted that the way you make really good money is to have contrarian, non-consensus predictions that are right versus wrong. And right now in AI, these big waves create so much wealth that I think for a moment when the waves happen, you have to move past that and realize that the wave could be so big that you can just plow in. But eventually Howard’s gonna be right and eventually the market is gonna become oversaturated. There’s this great book by Carlota Perez where she says that bubbles always follow real waves because you attract speculators and charlatans. And people would want you to say, if you use the word bubble, you don’t believe in AI, but it’s the opposite. I believe that it’s real, and that’s why it’s attracting the charlatans. And eventually we’ll go over the top. We always do.

Barry Ritholtz: Every new technology comes with this void of people that are deeply enmeshed in it, knowledgeable and articulate. And so there’s just a rush to fill that space and they get rich quick. And when people are getting rich quick, fools rush in. I love the Bill Bernstein quote. We use the word guru because it’s too difficult to spell charlatan, and it’s really very much true.

Barry Ritholtz: So let’s stick with the concept of variant perspective. Another phrase I really like and part of the job of being both contrarian and right. What do you think is a non-consensus view you’re willing to articulate today that’s gonna look obvious 10 years from now, but right now very non-consensus?

Bill Gurley: The thing that pops in my head just ’cause people have been talking about it the past few days. I think this paper that came out yesterday is just completely over the top. And the notion that every tech company in the world needs to have their terminal value set to zero is probably not true.

Barry Ritholtz: I love the barbell. Either AI is a bubble that is not gonna do anything for us, or it’s gonna be so effective, everybody’s gonna lose their job. Isn’t there anything in the middle? Hey, maybe this is a useful technology.

Bill Gurley: Well, look, if Buffett’s the one that said be fearful when others are greedy and greedy when others are fearful. So if AI fear is the topic of the day, the contrarian thing to do would be to try and figure out where, what price points you believe represent true value. And I’m not saying we’re there yet, but hey, since the zero interest rate period, high tech stocks have been rather expensive from a PE standpoint for what, seven years. Now they’re on sale.

Barry Ritholtz: All of a sudden Buffett says you wanna be a net buyer. So we should all be excited. People don’t, I heard last year that the magnificent seven, all this market concentration is gonna kill us. And yet, last year, only two of the seven beat the S&P 500. So this sale process started a year ago, and then so far this year it’s pretty clear the rally is broadening out. It’s going to other stocks. We continue to see sort of a rotating sell off as these AI fears hit different companies. It’s gonna be really interesting to see what’s gonna get cheap and attractive and fear driven going forward.

Bill Gurley: Yes, I agree. That’s where you should be looking.

Barry Ritholtz: Before I get to my favorite questions, I have one other sort of non-consensus question to ask you. What do you think people are either not talking about or thinking about that they really should be? What topic is getting overlooked, but should really be much more front and center than it is?

Bill Gurley: Everything but AI. I mean, I’ve never been in a scenario where everyone’s so all in on this one thing. And it is important. I think the best way to protect yourself against AI disruption is to run at it and be the person in your field that knows the most about it. But boy, everything else is just not being discussed.

Barry Ritholtz: Huh. Everything else. So let’s jump to our speed round. Our favorite questions. Let’s do it. Tell us about your early mentors who helped shape your career.

Bill Gurley: Well, I already mentioned Mauboussin. It was kind of more of a peer, but still I was so lucky. Al Jackson gave me that first job on Wall Street. When I showed up there, there was a gentleman named Charlie Wolf. I don’t know if you’ve ever met him.

Barry Ritholtz: Of course, Charlie Wolf. Charlie Wolf was one of the few guys bullish on Apple when the first iMacs came out and the iPod and the street did not understand Apple. And he’s the only guy who did.

Bill Gurley: And Charlie was a force of nature. People loved him. He was a professor, simultaneous professor at Columbia and sell side analyst on the street. And I got to hang out with him.

Barry Ritholtz: That’s a name I haven’t heard in a while. He passed away, unfortunately.

Bill Gurley: Unfortunately.

Barry Ritholtz: You mentioned a lot of books. There’s a whole chapter at the back about various books you and other people recommend. What are you reading currently? What’s interesting?

Bill Gurley: I’m reading an unreleased copy of David Epstein’s new book called Inside the Box. He did Range, which I adored. And anyway, Inside the Box, where he’s talking about how constraints drive creativity and it’s really been, what I love is when a book makes me think differently and about other things, and I’ve already, he and I have already started to have a text thread about taking it even further beyond what his intention was, which is awesome.

Barry Ritholtz: That description immediately makes me think of the scene from North by Northwest. I don’t know if he mentions this in the book, I having not seen it. The Hollywood MPAA code did not allow movies to show a man and a woman getting into bed. So it’s Cary Grant and I forgot which leading lady is the woman. And they’re on a train and they’re not allowed to both be seen in bed and then cut to the image of the long train driving into a tunnel, all the subtlety of a sledgehammer. That was fine, but the two of them sitting on, that’s the constraint that forced Hitchcock to say, oh, you’re not gonna let me do this, hold my beer.

Bill Gurley: And I had mentioned earlier, Tony Fadell, he would tell me that Steve Jobs for the iPhone, he didn’t come in and dictate every little thing, but he would say, I want it this thin. And by just saying that, rather than how thin can you make it, he forces people to think creatively about, and you come up with more ideation and innovation than without the constraint.

Barry Ritholtz: Huh. Really, really interesting. What are you streaming these days? What’s keeping you entertained?

Bill Gurley: I just watched Severance and I, my wife just started it without me, and I’m annoyed.

Barry Ritholtz: How’d you like it?

Bill Gurley: I loved it. Really, actually, I really did.

Barry Ritholtz: That’s on the queue. She was so good on Better Call Saul. But this is her shining, she already won the Emmy for it. But the implications from AI are really clever.

Bill Gurley: Well, I’ll, it’s definitely on my list to check out.

Barry Ritholtz: So my next two questions are kind of answered in the book, so essentially it’ll be a summation. What sort of advice would you give to a recent college grad interested in a career in either venture capital or finance?

Bill Gurley: Well, in finance, this is gonna be so redundant, I apologize. I would tell them to go read Michael Mauboussin’s five books, because Mike has read every single, Mike’s the most read financial mind that I know of. And he synthesized everything he read in those books. And so it would be like starting on second base. I talk about in the book that you should study the history of your field. And if studying the history of your field’s uninteresting, once again, I think you’re in the wrong place. And so that would be it. Like start with the masters, Graham and Dodd, and read the Buffett letters. It’s all out there. It’s so wonderful. There’s never been a better time to learn in the history of the world because it’s all available.

Barry Ritholtz: I’m so surprised more people don’t talk about The Success Equation because the idea of the impact of luck, and he talks about investing, business and sports. We underestimate luck tremendously, and it’s such a great book.

Bill Gurley: But you can improve your luck. Increase the surface area of luck is the phrase that always sticks out. And there’s a principle in the book called Go to the Epicenter, where we recommend if you can at all, go practice where everyone else is practicing, precisely to impact that equation.

Barry Ritholtz: And our final question, what do you know about the world of venture investing today that might’ve been useful 25 years ago when you were first starting?

Bill Gurley: It probably goes into the thing we already drilled into. Like had I been more open-minded to the question what could go right and pursued the Google investment. Maybe I retire earlier. Maybe we’re not talking about the book.

Barry Ritholtz: I have a feeling you would not have retired early. You would’ve kept going ’cause you seem to really love what you did.

Bill Gurley: I did. No doubt.

Barry Ritholtz: So Bill, thank you so much for doing this in the middle.

Bill Gurley: Can I leave you one last thing?

Barry Ritholtz: Yeah, absolutely.

Bill Gurley: The book was written for the hero that would make this journey, but there are people in every hero’s life that act as advisors and counselors as parents, and there’s a whole bunch of people that shape your career process. I think they’re gonna get a lot out of this book, even though it’s not written to them, because I think there’s this overwhelming, well-intentioned instinct to put the economic stability of a child’s life at the front. And I’m not sure it’s the right answer.

Barry Ritholtz: Huh. Coming up, we continue our conversation with Benchmark’s Bill Gurley. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio.

Barry Ritholtz: I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Bill Gurley of Benchmark Capital. So Benchmark has really put together an extraordinary track record. Uber, OpenTable, Zillow, Stitch Fix, eBay, go down the list. What is it about Benchmark’s model that was so unique and really produced better outcomes than so many VCs have over the years?

Bill Gurley: Yeah, I really, and I have to give the credit to the founders because they’re the ones that put this structure together. But this equal partnership structure has a cultural dynamic that encourages immense amount of support from the partnership. I certainly didn’t have a fear of failure or anything like that. And also an element of peer pressure. So the pressure’s not a pressure of do this or you’re out. It’s a pressure of my partners putting up these wins and I’m sharing equally, I need to do that myself. And so it’s more the way maybe someone on a sports team might do well and encourage other people on the team to do well as well. And for me, and I won’t say that this is necessarily true for everybody else, for me, that culture was a perfect fit. I enjoy having the camaraderie and the support of other people. I wouldn’t enjoy being a solo GP and making decisions on my own.

Bill Gurley: There’s some great work that’s been done on group dynamics and group analysis. And one of the really clever things is the group tends to know the weaknesses of the individual better than the individual themselves. And if you’re aware of that, you can use that to help your group decision making. So I just adored every bit of it. I love that the firm is tilted towards thinking about the work as a craft or an artisan. And I find that to be true of almost everyone I profile in the book. If you care about nuance and detail, it’s typically because you’re treating the art of what you do in a craft-like fashion.

Barry Ritholtz: Huh. Really, really interesting. And I think that’s what Benchmark does. Venture capital as a team sport. Do you wanna draw any parallel to playing ball? Anything that comes into that?

Bill Gurley: Well, I just, I mean, I think it could go beyond playing ball, but do you create a team culture where greatness is gonna be expected as an output? And I bring that up ’cause you mentioned Sam Hinkie in the book. I think the best coaches try and foster that. It’s not just about your individual performance. You’re a team.

Bill Gurley: And people, I think, should be more fascinated with what Bezos did at Amazon and Elon has done across multiple companies because the individual, everyone knows that Bezos and Elon are innovative and independent thinkers and contrarians, but how do they scale a company to hundreds of thousands of people? How do you take that mindset and put systems in place where it’s propagated all the way down? And I don’t think enough work is going into figuring out what they do.

Barry Ritholtz: I’ll give you another interesting example. Satya Nadella probably led the, either the first, probably from a market cap creation standpoint, the best turnaround of all time.

Bill Gurley: No doubt about that. Absolutely true.

Barry Ritholtz: I mean maybe Steve Jobs, but I don’t think, 20 years earlier. Those two. But that one almost went down to the studs on the remodel. If Gates didn’t save Apple, that would’ve been it. They would’ve been done.

Bill Gurley: So Steve was starting with more bare metal. Satya had to turn this bigger ship. And he claims what he did is he told everyone we’re gonna go from being a know-it-all to a learn-it-all culture. And man, if that one heuristic is what was the key to this? Kudos to him. And what a miraculously simple insight and then kudos to him on making it effective. Like pushing it through the organization.

Barry Ritholtz: I bet they had to push a lot of people out too. Well, if you look at the culture between him and Ballmer, very different personality. Very different approach. You can make the case that Nadella was the anti-Ballmer. And during Ballmer’s reign, it wasn’t great returns, although a lot of people didn’t have great returns in the two thousands. So it’s a little bit of both.

Barry Ritholtz: I have another question. I kind of suspect I know the answer. So you’ve spent decades not only picking business models, but founders, boards, addressable markets. What’s the single hardest question you wrestle with? Aside from what could go right.

Bill Gurley: The thing that pops in my mind, Barry, is this notion of TAM, total addressable market. And I think the investor community gets really stuck on that one and are not open-minded enough about what’s possible, especially if the technology becomes disruptive. There’s a famous interplay between me and this professor at NYU around Uber. He published this piece that said Uber would never be worth more than $4 billion. And I wrote one of my favorite blog posts ever titled How to Miss By a Mile, where I took apart his analysis and tried to, well, I had an unfair advantage. He said that the market Uber was attacking was a taxi market, and he used that as the thesis for his analysis. I already knew in San Francisco that Uber was 20x bigger than the taxi market. He didn’t know that. So once you have that piece of knowledge, it’s kind of an unfair game. But it gets at like, the product became so much better than what the taxi market offered you. And it immediately became, and in the long run will be a replacement for car ownership, which could allow for many, many years of growth.

Barry Ritholtz: Especially if self-driving taxis become a thing. But by the way, huge disadvantage analyzing Uber in New York City in the early 2010s. ‘Cause it was a monopoly. Taxis were a monopoly.

Bill Gurley: Not only that, in the report of his, which a summary version got public, but I found the background version. He admits that he had never ridden Uber and only taken taxis.

Barry Ritholtz: So I think being in New York gave you the exact wrong mindset. The first time you get into an Uber, you’re like, damn it. I wish I was an early investor in that. I remember being a beta tester of Google and sending an email and saying, Hey, can I invest in this company? They’re like, we are good. And then the first time I got into an Uber, it’s like, oh, this makes perfect sense. On your phone, it’s mobile, it knows where you are. It was so obvious after the fact. And credit to Dara for taking it from 40 billion to, he touched 200. So that’s fantastic. 200 billion versus four is, that’s what a closed-minded TAM analysis would get you. You get way off.

Barry Ritholtz: So I’m legally obligated to ask you about artificial intelligence. How are you looking at the opportunities in this space? I kind of think we addressed that. Do I really need to ask that?

Bill Gurley: Yeah, okay. So look, I think there are people in the venture community that would tell you this is the biggest disruption wave they’ve ever seen. And there’s no doubt that venture does extremely well around these dislocations, and there’s great books like The Innovator’s Dilemma that talk about why, but the mobile wave, the PC wave, the client server wave, all these things birthed really big companies, some of them doing the exact same thing. So there were four companies in the CRM space before Salesforce came along, but the SaaS wave allowed them to steal all that market cap that was in those companies.

Barry Ritholtz: And is that a case of second mouse gets the cheese?

Bill Gurley: No, I just think it’s that these waves, if they are, it’s very hard for an incumbent to be at the front of the wave. It is kind of different here with AI because there’s certainly an obsession within the Mag Seven about AI and what it might do to them. But anyway, VCs tend to do extremely well when these waves come, and so everyone’s all in. And look, it’s very disruptive. It’s very different than anything we’ve seen before. I would encourage people once again to really dive in and ask yourself, no matter what field you’re in, what is AI capable of here and to be that person in your organization that has the answer to that question.

Barry Ritholtz: You know, it’s fascinating that all of the big hyperscalers are spending tens of billions, hundreds of billions building out these systems. Apple’s writing a check to Google to put Gemini into Siri, which was early and terrible. Now it’s late and terrible. I’m hoping Gemini, which has been really good, turns Siri into something useful. How do you think of that sort of approach of saying, it’s cheaper to buy than build?

Bill Gurley: I have a couple different answers to this, which I think are quite interesting. First of all, the Mag Seven formerly were creating, I don’t know, three, 400 billion in cash flow and 2 trillion in revenue. Almost 400 billion in profits. But now almost all of that has been exhausted into CapEx. And Mike Mauboussin and I would have long arguments about what that meant from a valuation perspective. He sloughs it off and says they can stop tomorrow. And then the cash flow will come back.

Barry Ritholtz: Fair.

Bill Gurley: I argue if you’re trying to build a DCF, now all of a sudden you have to make a decision about whether that would happen or not, and whether there’s a return on this CapEx investment. But the second thing I wanted to say is I have found over the years, maybe this is another contrarian thing, that big companies think there’s some kind of safety net in making an investment in a new disruptor. And so here we have Microsoft and Google and Amazon making investments in these foundational model companies. And it’s not clear to me that that is actually a good hedge because I think both of those companies, OpenAI and Anthropic, now have escape velocity. I don’t think they’re dependent on the partner anymore. And it hearkens back in my brain to IBM letting Microsoft put the OS inside the PC and we sell hardware. What good is software gonna be?

Barry Ritholtz: All right. One last quote. You said there’s a mess coming from zombie unicorns that all have stale marks in private portfolios. I’m a huge fan of Cliff Asness’s volatility laundering. All the private ownership that doesn’t get updated or marked to market. What does that reckoning look like when these marks finally show up in the real economy?

Bill Gurley: So this is probably a three hour conversation that I will try and do in a very short form. There is a very famous investor, I’d call him an endowment manager named David Swensen.

Barry Ritholtz: Of course, Yale model.

Bill Gurley: That is the Yale model. And David said that everyone should be more invested in privates and famously had returns that were spectacular. But as someone who’s a historian in my space, that was 40 years ago when no one was doing it. It was a white space. So I think, absolutely, great valuations, great opportunities. I think the Swensen mimic effect has now played out. And I think personally that most of the endowments and foundations in the US are over invested in private, both PE and venture. And I think that the way the industry’s structured, and this would require a longer conversation, there’s no incentive for the operators inside of the endowments and foundations to get the paper marks right. And there’s no incentive for the GPs to get the paper marks right. And based on talking to people that do this for a living every day, I suspect both the venture paper marks and the PE paper marks and the real estate paper marks are all too high. And if we had had a liquidity run, like if an endowment tax had happened, you might get to that sooner. I think we’re going to, it’s gonna take forever to unwind.

Barry Ritholtz: You ask, kind of like, when’s the day of reckoning? I don’t even know. So I read over the past few months, Harvard and Yale are both trying to sell, they did some secondaries, right? So they’re doing some selling. That’s a sign.

Bill Gurley: That’s a sign.

Barry Ritholtz: Right. And now you see the whole issue with Blue Owl, with some marks and Boaz Weinstein making an offer to buy assets at a substantially discounted price. Are these one-offs or is this perhaps?

Bill Gurley: No, I think that’s maybe the first signs of this correcting. But once again, the only thing that could really lead to a faster correction is if there was a liquidity crisis within the endowment, and we briefly saw a threat of that when the president threatened to start taxing endowments and other things. There’s other articles you can find about debt products inside of foundations, which hint at the fact that you’re not getting liquidity from your privates and you don’t want to get over allocated in them, so you have to borrow money.

Barry Ritholtz: Well, all crises, financial crises at the underlying is leverage and debt. The other thing that to me was a big warning sign, I’m curious as to your thoughts. The whole democratization and hey, we’re gonna move private credit and private equity to people’s 401ks. That to me, smells like someone rang a bell.

Bill Gurley: I’m so with you on that, Barry. And I think you’re gonna watch the same thing happen with venture because as I talked about earlier where they’re trying to keep these companies private forever, they’re gonna have the same liquidity problem and I think they’re gonna run outta money ’cause they’ve gotten these things so big. So watch for someone to lobby to put 401k money into early stage venture firms as well. It’s already begun.

Barry Ritholtz: And it’s gonna be an issue. I fear the Swensen thing is going to have this, like you said, when he did it, he was the only one doing it and it was contrarian. Back to the Howard Marks thing, right? The fact that everyone followed him and the time it’s gonna take for that to play out and get fixed is forever.

Barry Ritholtz: Thank you Bill, for being so generous with your time. I’ve been speaking with Bill Gurley of Benchmark Capital and author of the book Running Down a Dream: How to Thrive in a Career You Actually Love. If you enjoy this conversation, well be sure and check out any of the 600 and change we’ve done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you get your favorite podcasts. I would be remiss if I didn’t thank the crack staff that helps me produce these conversations each week. Alexis Noriega is my audio producer, Anna Luke is my podcast producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

 

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