Digital Fossils
May 11, 2025 – Weekly comment
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The things that pass for knowledge I can’t understand
-Steely Dan – Reeling in the years
If Fed Chairman Powell doesn’t have a handle on how things are going to play out, then I certainly don’t have any insight.
Here’s where it seems like we’re heading:
Earlier this year, scientists discovered a peculiar term appearing in published papers: “vegetative electron microscopy”.
This phrase, which sounds technical but is actually nonsense, has become a “digital fossil” – an error preserved and reinforced in artificial intelligence (AI) systems that is nearly impossible to remove from our knowledge repositories.
The case of vegetative electron microscopy offers a troubling glimpse into how AI systems can perpetuate and amplify errors throughout our collective knowledge.
https://www.sciencealert.com/a-strange-phrase-keeps-turning-up-in-scientific-papers-but-why
Not much of a stretch to imagine that AI is going to lead to mass extinction.
What we can see in the markets is price. We assume that price embodies collective knowledge. However, there’s a lot of spin and control applied to ‘collective knowledge’ these days.
Another article that was forwarded to me (thanks JK) connected Spain’s recent power outage with news that Spain is now requiring that cash bank withdrawals over EUR 3k must be requested 24 hrs in advance to the Tax Agency, with additional information detailing the purpose of the withdrawal.
It is fear over exactly this kind of eventuality that has prompted governments and central banks in Scandinavia to try to reverse the public’s mass abandonment of cash that they themselves helped set in motion many years ago. As Sweden’s Riksbank warned last year, rapid digitalisation has made payments “more vulnerable to cyber attacks and disruptions to the power grid and data communication”.
…Combining digital currencies with digital IDs while phasing out, or even banning, the use of cash would grant governments and central banks the ability not only to track every purchase we make but also to determine what we can and cannot spend our money on. They could also be used to strongly encourage “desirable” social and political behaviour while penalizing those who do not toe the line.
How about this: you give me 48 hours notice before all power is shut down, and I will give you 24 hours notice that I will need cash. For ammo.
It seems to me that uncovering opportunities in markets is simply in comparing the interplay between prices, trying to exploit perceived differences, and accepting a small loss on adverse moves, even if the reasons aren’t clear.
That’s why I’ve concluded the best and only play is a max position short in US long bonds. (Just kidding. Sort of). [JOKE – NOT TRADING ADVICE]
Nothing more to add. Well I could say that bond vol seems expensive relative to five-yr, and that the last time I really noticed this relative strength was when the Fed was obviously behind the curve in terms of tightening policy in 2021. I could mention that the yield on Japan’s 20y bond is near the year’s high at 2.34%. (High of 1.94% pre-August yen-carry debacle. Low on 1.55 in August. Now above pre-Liberation Day high). I could tout the big beautiful progress made in terms of US/China trade negotiations, which will certainly be the narrative. Or we might point to the extraordinary surge since late April in the Taiwan dollar. (More fx volatility ahead). As of this writing on Sunday morning (US) bitcoin is ~105k, nearing the all-time high.
The things you think are precious I can’t understand.
USU5 100p settled 0’19 ref 114-01. Expires 22-Aug. Delta -0.06.
Cleveland Fed President Hammack said this weekend the Fed can wait for clarity, and there’s not a lot of data in front of the June FOMC. But there ARE a lot of Fed speakers this week, including Waller and Jefferson on Wednesday. Powell on framework review Thursday.
Data includes CPI on Tuesday. PPI, Retail Sales and Philly Fed Thursday.
| 5/2/2025 | 5/9/2025 | chg | ||
| UST 2Y | 383.8 | 388.1 | 4.3 | |
| UST 5Y | 393.2 | 398.5 | 5.3 | |
| UST 10Y | 432.7 | 437.1 | 4.4 | |
| UST 30Y | 478.8 | 483.1 | 4.3 | |
| GERM 2Y | 176.2 | 178.5 | 2.3 | |
| GERM 10Y | 253.3 | 256.2 | 2.9 | |
| JPN 20Y | 221.0 | 234.4 | 13.4 | |
| CHINA 10Y | 162.8 | 163.5 | 0.7 | |
| SOFR M5/M6 | -94.5 | -92.5 | 2.0 | |
| SOFR M6/M7 | 3.0 | 2.5 | -0.5 | |
| SOFR M7/M8 | 21.5 | 21.0 | -0.5 | |
| EUR | 113.00 | 112.56 | -0.44 | |
| CRUDE (CLM5) | 58.29 | 61.02 | 2.73 | |
| SPX | 5686.67 | 5659.91 | -26.76 | -0.5% |
| VIX | 22.68 | 21.90 | -0.78 | |
| MOVE | 101.40 | 100.40 | -1.00 |
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