Fukuyama: "Superintelligence Isn’t Enough"

From Frankly Fukuyama at Persuasion, October 8:

AI has many answers—but it can’t by itself build a new society. 

I have a longtime friend whom I’ve known since my college days, who made his money as an investor and entrepreneur at the edge of the tech world. One constant about him over the years has been his endless admiration for people he regards as “very smart.” He means this in a very specific way: they are very good at math, and have done well for themselves making money using their brainpower.

He’s not alone in this preoccupation. Silicon Valley is a virtual cathedral for the worship of geniuses—initially people like Steve Jobs, Bill Gates, and Elon Musk—who have built world-beating companies around applications of technology. That technology has now moved onto AI, where Sam Altman, Demis Hassabis, and Yann LeCun have become the new icons of brilliance.

And what this generation is building is, indeed, intelligence. There is a race currently on for artificial general intelligence (AGI), a machine that will have the cognitive capabilities of a human being. Indeed, more than that: cutting-edge machines are “growing” rather than being programmed, and are reportedly capable of modifying themselves to extend their own capabilities. They will not stop at human intelligence, but will become smarter than human beings. This type of “superintelligence” will then lead to huge advances in science, technology, and the economy. There are already achievements along these lines, like Hassabis’ Alphafold project that has solved protein-folding problems that seemed beyond the capabilities of earlier technologies. There are serious discussions taking place now about a future, not that far away, where advanced economies using superintelligent AI will be able to achieve substantially higher growth rates of 10, 15, 20 percent per year, compared to the 2-3 percent that’s considered substantial today. Material deprivation will disappear and be replaced by schemes to subsidize those whose livelihoods have been displaced by AGI, like universal basic income.

There are several problems with these speculations. The first is one I’m not in a position to evaluate: whether AGI or superintelligence are even possible. Writers like Eric Larsen have suggested that while LLMs are good at culling enormous stores of existing knowledge, they lack the kind of speculative insight that the cognitive scientist C. S. Peirce labeled “abduction” that is required for true innovative discovery.

But let us assume for the moment that AGI will come about, and that machines will become more intelligent in certain respects than human beings. There are powerful reasons to believe that this capability will be transformative in many ways, but may not produce explosive economic growth as the AI cheerleaders expect.

The reason for this skepticism is that the binding constraint on economic growth today is simply not insufficient intelligence or cognitive ability. Even absent smart machines, human beings today collectively have more cognitive ability than at any prior point in human history. The binding constraint has to do with how that intelligence interacts with the material world in a myriad of ways. Economic growth depends ultimately on the ability to build real objects in the real world. A smart machine may be able to come up with a plan for a better mousetrap, but to actually fabricate that mousetrap requires capabilities beyond any machine’s control.

At a macro level, we are already running into the constraint of too many dollars chasing too little stuff. As environmental doomsayers have been arguing for years, there are ultimately material limits to growth. The one most obviously in front of us is global warming, but there are many others. The planet does not have the resources to sustain 8 billion people with an American standard of living; indeed, at 10 percent annual growth, China, America, and Europe would soon run out of everything, including agricultural land, water, energy, and almost everything else.

At a micro level, there is a problem translating the work of smart machines into material goods. Product innovation has always depended on a prolonged iterative process whereby a designer tries out ideas, fails, and modifies the design in response. No amount of superintelligence will ever be sufficient to simulate the behavior of material objects under the conditions of the existing material world, as generations of builders and tinkerers know....

....MUCH MORE 

"A narrow Pacific waterway is at the heart of U.S. plans to choke China’s vast navy"

The Chinese geo-strategists are very aware of the importance of choke points. More after the jump.

From Reuters, October 31:

The U.S. has deployed troops and anti-ship missiles into the northern Philippines as part of almost continuous, joint war drills throughout the country. One goal is to block the Bashi Channel and deny Chinese warships access to the Pacific Ocean if Beijing launches an attack on Taiwan. As a former Philippine military chief told Reuters: You can’t invade Taiwan if you don’t control the northern Philippines.

Marilyn Hubalde still remembers the first time she heard the thunderous chop of military helicopters swooping over this northernmost outpost of the Philippines, less than 90 miles from Taiwan. It was April 2023, when Filipino and American troops descended on the cluster of 10 emerald green islands of Batanes province for amphibious warfare drills.

 

“We were terrified,” the 65-year-old Hubalde recalled. “We thought China might attack when they learned there were military exercises in Batanes.” Hubalde’s helper, who was in the fields when the troops arrived, panicked and hid in the woods until nightfall. “She thought the war had already started,” said Hubalde, who owns a variety store in the provincial capital, Basco. 

Since then, Batanes’ 20,000 residents have become accustomed to high-tempo war games in these islands of tightly packed towns and villages wedged between rugged slopes and stony beaches. Among them: a series of joint exercises from April to June this year in which U.S. forces twice airlifted anti-ship missile launchers here.

 

Until recently, locals say, this smallest and least populous province of the Philippines was a peaceful backwater. But geography dictates that it is now on the frontline of the great power competition between the United States and China for dominance in the Asia-Pacific region. The islands sit on the southern edge of the Bashi Channel, a major shipping lane between the Philippines and Taiwan that connects the South China Sea with the Western Pacific.

 

This year’s exercises revealed how the U.S. and its Philippine ally intend to use ground-based anti-ship missiles as part of efforts to deny the Chinese navy access to the Western Pacific by making this waterway impassable in a conflict, Reuters reporting shows. These missiles could also be used to attack a Chinese fleet attempting to invade Taiwan or mount a blockade against the democratically governed island.

 

The ability to conduct operations deep into the Pacific would be vital for the Chinese navy if it wanted to counter U.S. and Japanese attempts to intervene in a Taiwan crisis. Chinese naval and air forces would also need to operate in the Western Pacific to stymie any counter-measures by the U.S. and its allies if Beijing imposed a blockade on Taiwan.

 

“We should have the ability to deny the Chinese control of the Bashi Channel,” retired Rear Admiral Rommel Ong, a former vice-commander of the Philippine Navy, told Reuters in an interview. “In a conflict scenario, that decisive point will determine who wins or who loses.”

Retired General Emmanuel Bautista, a former chief of staff of the Armed Forces of the Philippines, put it even more plainly: “The invasion of Taiwan is almost impossible if you don’t control the northern Philippines.”....

....MUCH MORE 

And the Chinese? They like the water. From the outro of September 2024's Meanwhile, In The Arctic: "Svalbard-research becomes more important for China, professor says": 

We've mentioned China's proclivity for establishing bases on international maritime chokepoints: the billion dollar bridge over the Panama Canal, the giant battery factories in Morocco - the eastern approaches to the Strait of Gibralter.

Also February 2024's "Red Sea Rivalries": 

The most amazing thing that has been pointed out over the last couple months is that China's base on Djibouti's Gulf of Aden coast, at the approaches to the Bab al-Mandab chokepoint into the Red Sea, gives them the perfect location to monitor Houthi action and American reaction:

—China Officially Sets Up Its First Overseas Base in Djibouti, The Diplomat

Also the Suez Canal itself: ""China & Egypt Strengthen Belt And Road Collaborations Including The Suez Canal International Logistics Zone"
I'm beginning to see a pattern here.*

And April 2024 Why the U.S. and China Suddenly Care About a Port in Southern Chile":  

And all of a sudden (after years of development) China is hanging out at the entrance to some very strategic sea lanes. In fact, the only major chokepoint not seeing a Chinese development that comes to mind is the Strait of Malacca between Singapore/Malay Peninsula and Indonesia's Sumatra.

The Bering Strait between the Russian far east and Alaska, and South Africa are on a gentle simmer and back to Svalbard, one look at the map shows the attraction. Also from the Barents Observer, this time in 2021:

Geopolitics: "Moscow aims to enhance presence in Svalbard as part of hybrid-strategy, expert warns"

....Military speaking, Svalbard is of great strategical importance, located between the Barents-, Greenland-, and Norwegian Seas. The one controlling Svalbard is also likely to control the important gateway from the shallow Barents Sea to the deeper North Atlantic.

For Russia’s Northern Fleet, the so-called Bear Island Gap between mainland Norway and the archipelago’s southernmost island is key to conducting sea denial operations in and over the maritime areas further south, potentially threatening NATO’s transatlantic sea lines of communication.

See:Meanwhile, In The Arctic: "Svalbard-research becomes more important for China, professor says"

 

Russian Bastion Defence in relation to Norway and the Bear and GIUK Gaps. 

Source: Mikkola / RAND Europe report 

Back to the Persians, Iran seems to be cheering-on the not-quite-dormant anti-French sentiment among the Algerians once again. 

From LeMonde February 23: 

"After Islamist knife attack in Mulhouse, French interior minister blames Algiers"

And from Turkey's Anadolu Agency, February 26:

‘Long series of threats and harassment’: Algeria condemns fresh French sanctions

Finally:

July 5, 2024 
Chinese EV battery makers are building huge factories in Morocco to cash in on U.S. electric vehicle subsidies" (and China is now camped at most of the world's chokepoints 
I say, isn't Morocco on the Strait of Gibralter?*

"Why the New Leisure Class Enjoys Activism and Philanthropy"

From Palladium Magazine, October 24:

In 1899, Thorstein Veblen published The Theory of the Leisure Class, which soon became one of the most influential works of economics and anthropology ever written. Today it is best remembered for its role in stigmatizing “conspicuous consumption,” a concept Veblen coins in the book. Veblen’s full theory is much broader. He describes the leisure class, a group of people whose vocation is performing aristocratic leisure in order to show that they are higher and more honorable than the common throng. It has been over a century since Veblen’s time, and the specific forms of reputable leisure which the privileged class engage in have changed completely. The basic structure of the leisure class, however, is much the same.

The most reputable displays of leisure were aristocratic in Veblen’s time. Veblen uses examples like hunting for sport, speaking Latin and Greek, and learning refined manners to demonstrate “good breeding.” By now, all of this is hopelessly old-fashioned. But the leisure class is far older than these aristocratic values and aesthetics, and did not cease to exist just because that ideology collapsed. Today the leisure class has adopted the new ideology, which we can roughly call “social activism,” and performs its conspicuous leisure in accordance with these newer values and aesthetics.

The Leisure Class of Today

When we talk about “the leisure class” today, we do not mean people who spend all day watching TikTok or playing video games or listening to true crime podcasts. We are talking about people who engage in conspicuous leisure. By conspicuous, we mean that they show off their exemption from unworthy labor through accomplishments which those without leisure cannot match, for want of time or money or energy. They spend their time and effort in “honorific” pursuits which place them above the base necessity of directly producing wealth.

A meatpacker illegally working twelve-hour shifts can watch Breaking Bad when he comes home, so watching Breaking Bad is just ordinary leisure, and having opinions about Breaking Bad does not demonstrate conspicuous leisure. But only a man of means and distinction can take three-week vacations to go scuba diving in exotic locations—and upload the selfies to social media—so this becomes a mark of honor. In the language of today’s economists, what Veblen calls “conspicuous” might be phrased as “suitable for costly signaling.” Conspicuous leisure often includes mastery of subtle and exacting speech codes, and adherence to precise forms of manners, carriage, and behavior, all of which requires careful study and training within the social milieu of the reputable elites.

This is why class expression is not the same thing as wealth. Many anthropologists of the modern United States, including Paul Fussell in his masterful Class: A Guide Through the American Status System, have observed that there is a large class of wealthy businessmen who own and operate valuable companies, yet do not code as part of the upper class. This is because they make their money through base production. They own and operate farms, or car dealerships, or construction businesses, or the like. They spend their energy in the work of creating wealth—not “creating wealth” in the sense of amassing dollars and stock options and intangible claims on other people’s labor, but “creating wealth” in the sense of manipulating physical objects, the food and cars and houses that people want to acquire with their dollars at the end of all the negotiating and fundraising and politicking about how the dollars will be distributed. In popular perception, perhaps even instinctively, this work of creating tangible wealth is considered inherently base. The entire point of conspicuous leisure is to prove that one is above such concerns, so no matter how much money a physical business operator may make this way, he cannot fully become one of the rarefied gentlemen.

Of course, a gentleman of means has far more wealth than he can spend on his own leisure, so he also needs other ways to make his station visible. One of these is conspicuous consumption, the most famous concept from Veblen’s book. This is when people buy expensive objects, not mainly because they think the physical Louis Vuitton handbag is so much better than another handbag or because the Lamborghini is so much better than another car, but to display their ownership of the object to others.

Conspicuous consumption has become less important in recent generations, although it is far from dead. As industrial mass production has made physical objects cheaper and widely available, they have become a poor way to distinguish the gentleman from the throng. When fine clothes were out of reach for most people, they were an extremely important way for the wealthy to distinguish themselves, and you could tell rich from poor at a glance. In 2025, it’s possible to buy a decent ballgown on a minimum wage salary, so there is little point in wearing ballgowns. Multimillionaires might as well wear a t-shirt and sneakers. We have seen less dramatic versions of the same trend with objects like fine tableware, furniture, televisions, and even diamonds.

Where conspicuous consumption of manufactured goods remains an effective social tactic, now it is often a matter of purchasing expensive brand names at deliberately inflated prices, rather than purchasing objects which necessarily require a great deal of labor to make, like a 19th century ballgown. A billionaire can buy a brand-name handbag, and a grocery store clerk can buy a “counterfeit” handbag which most people find indistinguishable.

The sharpest point in the decline of conspicuous consumption was the rise of the “counterculture” in the 1960s and especially 1970s. This ideology eschewed material status symbols, often using Veblen’s words to denounce them as crass and spiritually polluted. Instead, they turned back to conspicuous leisure—following rock bands on tour across the United States, backpacking the “hippie trail” across southwest Asia, cultivating mystic awareness, devoting themselves to radical activism, and a dozen other means of demonstrating their remove from labor and physical production. By the 21st century, when the counterculture had been fully recuperated into the mainstream culture, marketers spoke of the value of “experiences” over “things” in order to sell conspicuous leisure to the middle class.

There is another way for a gentleman to display his wealth beyond what he can expend on his own leisure, even more important than conspicuous consumption. This is vicarious leisure, that is, maintaining others to engage in nonproductive activities which redound to the honor of the master. Historically, the most basic form of vicarious leisure was maintaining a wife to engage in reputable leisure rather than household production, but it could reach much greater scale than that. In the Dark Ages, men like Hrothgar would throw massive feasts for his followers every night in his mead-hall and give gold bracelets to his favorites. In the Middle Ages, a lord would maintain a court full of retainers and knights and astrologers and jesters. As Adam Smith tells the story in The Wealth of Nations, it was only with the late medieval rise of craft production and long-distance trade that conspicuous consumption of luxury goods could absorb the money that had once gone to the vicarious leisure of maintaining a court.

By the time Veblen published in 1899, the middle class had come to the fore, so the leisure class had grown to include many people of moderate wealth. At that point he claims the main form of conspicuous leisure was employing household servants to maintain standards of exacting cleanliness far beyond the point required by hygiene and good health, “not so much for the individual behoof of the head of the household as for the reputability of the household taken as a corporate unit.”....

....MUCH MORE

The author and/or publisher missed a trick.

Though the opening graphic illustrating entitled leisurecrats is the famous 1969 picture of John Lennon and Yoko Ono doing their "bed-in" protest against the Vietnam war:

 

there is another picture, this one of John and Yoko waiting for the maid—who can't afford such performative lie-abed behavior—waiting for the maid to change their bed linens:

 

"The 7 Phases of the Internet A map to where the Web goes next"

From IEEE Spectrum, October 27:

Dr. Mallik Tatipamula is CTO at Ericsson, Silicon Valley, with a distinguished 35-year career spanning Nortel, Motorola, Cisco, Juniper, F5 Networks, and Ericsson.

Dr. Vinton Cerf is VP and Chief Internet Evangelist of Google and the co-inventor of the Internet with Robert Kahn. 

The Internet, born as an experiment meant to connect teams of researchers, has grown into a planetary-scale infrastructure that has reshaped society. Over the course of six decades, it has advanced through—by our count—three phases: first connecting computers, then mobile devices, and later all devices. But that’s just the start. Because just ahead comes new frontiers of connected intelligence and then, later, perception. Last, we suggest, represents a kind of global or ubiquitous connectedness, and finally connectedness even down to the quantum scale.

Through every phase, connectivity has been the unifying principle, although with every successive phase also comes new forms of connection. The story begins with connected packets of data across fixed networks of big machines. Then comes mobility, along with broadly connecting all manner of machines—not just mobile and fixed computing devices. Having already progressed through the first three Phases of the Internet (and having now entered the fourth), the world today has seen the steady expansion of human potential, while unlocking new industries, and reshaping how everyone connected to the Internet lives and works.

With a nod to Shakespeare’s As You Like It, what follows is our sketch of the Internet’s 7 Phases. However, unlike the Bard’s “7 ages of man,” each of the Internet’s eras do not come to an end when the next one starts. The Internet’s 7 Phases, in other words, are not sequential but rather additive. Each phase builds on and extends the previous, in the process setting the foundation for what is still to come.

Phase 1: The Internet 
The original Internet was conceived in the 1970s to interconnect computer networks. Its groundbreaking aspect lay not only in its architecture but also in the principle of openness. By adopting common protocols, diverse networks could connect regardless of their location. The Internet has transformed isolated systems into a “network of networks,” enabling unprecedented collaboration across institutions and borders. Early applications such as email and file transfer demonstrated that connectivity could democratize access to information.

In the early 1990s, the World Wide Web introduced a unifying framework: URLs as addresses, HTTP for communication, HTML as a common language, and the browser as a universal interface. Between 1991 and ‘93, the Web transformed the Internet from a research network into a global platform for information exchange, paving the way for broader adoption. 

Phase 2: The Mobile Internet...

....Phase 7: The Quantum Internet....

....MUCH MORE 

Quanta Services Q3 2025 Earnings Call Transcript (PWR)

The stock did get close to the bottom of the gap mentioned in yesterday's "Heavy Construction: Electrical Contractor Quanta Services Q3 2025 Revenue Surpasses Estimates at $7.63 Billion, GAAP EPS Falls Short at $2.24, Stock Fades (PWR)":

Aargh, I hate it when stock rise into earnings: 

 

TradingView

After trading up $9.12 (+2.07%) yesterday (and up 10.55% over the last month) the stock is down $2.68 (-0.60%) in early pre-market trade. $446.01 last. 

A fill of that $427.35 to $439.00 Oct. 23 - 24 gap before we get moving again would be nice.

the prints were weak, occurred premarket and didn't quite touch that $427.35:

8:48 AM EDT 2 shares at $428.48.

9:05 AM EDT 14 shares at 428.50.

But the decline did reverse, dramatically, rising $25.35 to close the regular session up $5.14 (+1.15%) at $453.83,

Yeah, when I get bored I do time & sales analysis, what's your hobby?

From Motley Fool Transcripts, October 30, skipping past the excellent overview and summary:

Thursday, Oct. 30, 2025, at 9 a.m. ET
Call participants

    President and Chief Executive Officer — Duke Austin
    Chief Financial Officer — Jayshree S. Desai
    Vice President, Investor Relations — Kip A. Rupp

...Full Conference Call Transcript

Kip A. Rupp: Great. Thank you, and welcome everyone to the Quanta Services third quarter 2025 earnings conference call. This morning, we issued a press release announcing our third quarter 2025 results, which can be found in the Investor Relations section of our website at quantaservices.com. This morning, we also posted our third quarter 2025 operational and financial commentary and our 2025 outlook expectation summary on Quanta's Investor Relations website. While management will make brief introductory remarks during this morning's call, the operational and financial commentary is intended to largely replace management's prepared remarks, allowing additional time for questions from the institutional investment community.

Please remember that information reported on this call speaks only as of today, 10/30/2025, and therefore, you are advised that any time-sensitive information may no longer be accurate as of any replay of this call. This call will include forward-looking statements and information intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995, including statements reflecting expectations, intentions, assumptions, or beliefs about future events or financial performance or that do not solely relate to historical or current facts.

You should not place undue reliance on these statements as they involve certain risks, uncertainties, and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied. We will also present certain historical and forecasted non-GAAP financial measures. Reconciliations of these financial measures to their most directly comparable GAAP financial measures are included in our earnings release and operational and financial commentary. Please refer to these documents for additional information regarding our forward-looking statements and non-GAAP financial measures. Lastly, please sign up for email alerts through the Investor Relations section of quantaservices.com to receive notifications of news releases and other information.

And follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would like to now turn the call over to Mr. Duke Austin, Quanta's President and CEO. Duke?

Duke Austin: Thanks, Kip. Good morning, everyone. Quanta delivered another quarter of strong results, achieving double-digit growth in revenue, adjusted EBITDA, and adjusted EPS compared to the prior year, along with a record backlog of $39.2 billion and a number of other record financial metrics. These results reflect accelerating demand in our electric segment, robust activity across our end markets, and positive momentum headed into 2026. They demonstrate the strength of our portfolio, the capability of our craft-skilled workforce, and our ability to provide certainty through world-class execution as customers modernize and expand critical infrastructure.

Our performance continues to be powered by Quanta's core drivers: craft-skilled labor, execution certainty, and disciplined investment, which are critical to how we operate and create long-term value. Our craft workforce remains the foundation of our business, executing with safety, quality, and reliability across diverse infrastructure solutions. Execution certainty reinforces our reputation as a trusted partner capable of consistent high-quality project delivery, and disciplined investment ensures capital is allocated toward opportunities that strengthen our platform, deepen customer relationships, and support sustainable growth. Quanta's integrated solution-based model continues to differentiate our platform. By combining craft labor with engineering, technology, and program management expertise, and critical supply chain capabilities, we deliver comprehensive self-perform solutions across the full infrastructure life cycle.

This approach deepens customer partnerships and positions Quanta as a long-term collaborator, not a traditional contractor. Quanta operates at the center of a fundamental transformation in the energy and infrastructure sectors. The convergence of the utility, power generation, technology, and large load industries is driving increased demand for resilient grids, expanded generation and storage, and new infrastructure to support electrification, data centers, and domestic manufacturing. These structural drivers are fueling a generational investment cycle in critical infrastructure, and Quanta's diversified, scalable platform is well-positioned to capitalize on these opportunities.

To that end, this morning, we announced the expansion of our total solutions that builds upon our world-class craft-skilled labor capabilities and history of constructing more than 80,000 megawatts of power generation through our industry-leading renewable energy and battery energy storage solutions, as well as other forms of generation. Our total solutions power generation platform leverages these capabilities to address growing generation and infrastructure needs due to the rapidly increasing demand for electricity from data centers, manufacturing and reshoring, industrialization, electrification, and power grid expansion. This platform is focused on providing a fully integrated solution to high-quality customers for their generation development strategies.

As a demonstration of this platform's strength and scalability, NiSource has engaged Quanta for a design, procurement, and construction execution of generation and infrastructure resources capable of producing approximately three gigawatts of power for a large load customer. This project highlights the strength of our total solutions platform, spanning power generation, battery energy storage, transmission, substation, and underground infrastructure, and underscores the value of our collaborative approach and builds on our relationship with NiSource and strong presence in Indiana. We believe these announcements reinforce our strategy to lead in large converging markets where utilities, power consumers, and industrial operators require scalable integrated solutions. We expect to achieve record backlog and another year of double-digit earnings per share growth in 2026.

Our strategy remains focused on delivering certainty to customers, investing in talent and technology, and expanding our addressable markets through disciplined strategic growth. Quanta's resilient solution-based model has performed well through varying market conditions. Our strong execution, disciplined investment, and commitment to safety and quality continue to differentiate our platform and support sustainable value creation for our shareholders. I will now turn it over to Jayshree Desai, Quanta's CFO, to provide a few remarks about our results and 2025 guidance, and then we will take your questions. Jayshree?

Jayshree S. Desai: Thanks, Duke, and good morning, everyone. This morning, we reported third quarter results with revenues of $7.6 billion, net income attributable to common stock of $339 million, or $2.24 per diluted share, adjusted diluted earnings per share of $3.33, and adjusted EBITDA of $858 million. Based on our continued backlog momentum and strong revenue growth during the quarter, we are raising our full-year revenue expectations to a range of $27.8 to $28.2 billion. We are also raising our full-year free cash flow expectations to $1.5 billion at the midpoint, driven by another quarter of healthy free cash flow, totaling $438 million.

During the quarter, we issued $1.5 billion of notes to recapitalize the balance sheet and enhance our liquidity position following the acquisition of Dynamic Systems. The interest rate on these notes was approximately 40 basis points lower than our issuance in 2024, reflecting the benefit of our recent ratings upgrade and the stability of our earnings outlook. This transaction reinforces our ability to support operations, maintain financial flexibility, and deploy capital strategically while preserving our investment-grade rating. Our customers continue to value Quanta's differentiated, self-performed craft labor solutions, and we are expanding our platforms for growth, as evidenced by the power generation platform we announced today.

These dynamics, coupled with another quarter of record backlog, give us confidence in our ability to drive sustained revenue and earnings growth over the coming years. As we look toward 2026, the end market momentum and our consistent execution position us to deliver another year of double-digit adjusted EPS growth and attractive returns. We believe the opportunities ahead represent the next phase of a generational investment cycle in critical infrastructure, and Quanta is well-positioned to lead through it, delivering consistent performance, disciplined capital deployment, and long-term value creation for our stakeholders. Our operational and financial commentary and outlook expectation summary can be found on our Investor Relations website. With that, we are happy to take your questions. Operator?

Operator: We will now move to our question and answer session. For today's session, we will be utilizing the raise hand feature via the webinar. If you would like to ask a question, simply click on the raise hand button at the bottom of your screen and press star six to unmute. Once you have been called on, please unmute yourself and begin to ask your question. We ask that all participants limit themselves to one question. If you have additional questions, you may re-queue, and those questions will be addressed, time permitting. Thank you. We will now pause a moment to assemble a queue. Our first question is from Steve Fleishman from Wolfe Research.

Please unmute your line and ask your question....

....MUCH MORE 

In this morning's pre-market action the stock is changing hands at $458.26, up a bit more.

We'll see if the buyers maintain their enthusiasm 

"Art theft is due for a market-share shift"

From Reuters' BreakingViews, October 24:

Nearly a week after they stole perhaps $100 million of royal jewelry from Paris’s Louvre museum, the thieves are still at large. What’s unusual about their spectacular heist isn’t just the prestigious location, the in-broad-daylight execution, or the incredible monetary value. It’s that the perpetrators took something they could sell for a change.

 

After using a crane to climb through a second-floor window before cutting into displays and threatening staff, the criminals managed to escape by scooter within eight minutes. The temptation is to assume operations like this are sophisticated, in the mold of silver-screen capers like "Ocean's Twelve", "The Thomas Crown Affair", or "How to Steal a Million". After all, media, police and hapless museums have an incentive to play along in order to attract public attention, deflect blame if they to fail to crack the case, and earn praise if they succeed.

While thieves’ taste may be exquisite, the methods aren’t. Researchers find that most use brute force and physical intimidation of guards for access. While half used deception, including inspired examples – a Brazilian robbery during carnival and Norwegian heists during an Olympic ceremony – burglars mostly just wore balaclavas.

The choice of location isn’t unusual either. France is the most common site for museum theft in the world, with Italy second, according to Interpol and the Federal Bureau of Investigation data. These countries are ground zero for the world’s best-known art.

Oddly, jewelry isn’t a popular choice of target. Nearly six times as many paintings are nabbed as gold or gems. 

This represents a colossal market failure....

....MUCH MORE 

I'm not sure if the analysis includes the Dresden theft of a half-decade ago.

December 2020 - And In Other Gigantic Theft News....

Although what the authorities said at the time was that the value of the jewels was inestimable, the press immediately glommed onto a billion whatevers, dollars, euros, pounds.*

*****

*Seriously, how do you put a price on stuff like a diamond encrusted sword hilt :

Or a few years before that one: 

December 19, 2019
SCMP: "Leads on Dresden jewel heist suggest Arab clan involvement" 

First up, the South China Morning Post, December 13:

Investigators seeking links to theft of 100kg (220lb) gold coin – the Big Maple Leaf – from Berlin museum in 2017

The “Big Maple Leaf” gold coin in the Bode Museum in Berlin in December 2010. It was stolen in March 2017. 

Photo: dpa via AP

With a deeper dive in 2023:

"The Big Coin Heist"

In contrast to the falling-down-pants guys with their pockets stuffed with $100,000 in stolen dimes, here's some big money.

From Hazlitt Magazine, March 1, 2023:

It was a piece of currency so large it seemed unimaginable anyone would try to steal it. But that was part of the appeal.... 

Capital Markets: "Bullish Dollar Consolidation"

From Marc Chandler at Bannockburn Global Forex, October 31:

Overview: After extending this week's rally yesterday, the US dollar is consolidating yesterday's gains in what appears to be favorable price action. The pullback from greenback's best level has been shallow. The US struck several trade deals this week, and secured a trade truce with China, even if many are skeptical of its longevity, and the Federal Reserve pushed against a December cut, and the futures market has reduced the odds to about 2/3 from near certainty. Emerging market currencies are mixed, but this week's highlights include the PBOC setting the dollar's fix at a new low since October on Wednesday before steadying it in the last two sessions and the (3.6%) recovery of the Argentine peso following last Sunday's election. 

The Nikkei extended its weekly advance today. The 2.1% gain today brings the weekly rise to 6.3%. Most of the other large equity markets in the region but South Korea's Kospi weakened today. Yet, the MSCI Asia Pacific index is closing higher on the week and is securing its seventh consecutive monthly advance. Europe's Stoxx 600 is weaker for the fourth consecutive session, which matches its longest decline since June. Still, it is poised to settle higher for the fourth consecutive month. Helped by Amazon and Apple, US index futures are trading higher after yesterday's heavier today. The S&P 500 and Nasdaq will settle higher for the sixth and seventh consecutive months, respectively. European and US 10-year benchmark yields are slightly firmer today. Near 4.10%, the 10-year US Treasury yield is up around 12 bp this week, the most among the G10 countries. Gold is trading heavier, and barring a significant recovery, will settle lower in back-to-back weeks for the first time since July. December WTI is hovering near $60 and is off about 2% this week....

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"Nvidia to supply more than 260,000 Blackwell AI chips to South Korea"

At $30,000 to $40.000 for the individual B200 chips or $60,000 to $70,000 for the B200-times-2-plus-a-CPU combo GB200 superchip, Mr. Huang may want to consider a career in sales.

From Reuters, October 30:

U.S. semiconductor leader Nvidia (NVDA.O), opens new tab on Friday said it will supply more than 260,000 of its most advanced AI chips to South Korea's government and some of the country's biggest businesses, including Samsung Electronics (005930.KS).

The deal is the latest for a company at the core of a global race to integrate artificial intelligence into products and services, adding to a flurry of deals it is striking worldwide that helped it on Wednesday become the first $5 trillion firm. 

For Korea, the deal will put the country on track to become a regional AI hub after President Lee Jae Myung, who took office on June 4, prioritised AI investment to spur growth at a time when U.S. tariffs have clouded the broader economic outlook.

 

"Just as Korea's physical factories have inspired the world with sophisticated ships, cars, chips and electronics, the nation can now produce intelligence as a new export that will drive global transformation," Nvidia CEO Jensen Huang said in a statement, disclosing neither deal value nor supply schedule.

 

The announcement followed a meeting between Huang, Lee and the leaders of Samsung, SK Group and Hyundai Motor Group on the sidelines of the Asia Pacific Economic Cooperation summit in the southeastern Korean city of Gyeongju.

 

Nvidia's deepening ties with Korea, home to semiconductor and automotive majors, come as the chip firm grapples with the fallout of a Sino-U.S. trade war that Huang said this month has slashed its share of China's advanced AI chip market....

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Earlier -  "Samsung building facility with 50,000 Nvidia GPUs to automate chip manufacturing"

"Samsung building facility with 50,000 Nvidia GPUs to automate chip manufacturing"

Close to getting recursive here.

From CNBC, October 31:

• Korean semiconductor giant Samsung said it plans to buy and deploy a cluster of 50,000 Nvidia GPUs to improve its chip manufacturing for mobile devices and robots.
• It’s the latest splashy partnership for Nvidia, whose chips remain essential for building and deploying advanced artificial intelligence.
• Samsung said it would work with Nvidia to tweak its fourth-generation HBM memory for use in AI chips.

 Korean semiconductor giant Samsung said on Thursday that it plans to buy and deploy a cluster of 50,000 Nvidia graphic processing units to improve its chip manufacturing for mobile devices and robots.

The 50,000 Nvidia GPUs will be used to create a facility Samsung is calling an “AI Megafactory.” Samsung didn’t provide details about when the facility would be built.

It’s the latest splashy partnership for Nvidia, whose chips remain essential for building and deploying advanced artificial intelligence.

The collaboration with Samsung comes after Nvidia CEO Jensen Huang on Tuesday announced in Washington, D.C., that Nvidia was selling collaborating with companies including Palantir, Eli Lilly, CrowdStrike and Uber.

Shortly after the speech, Huang was spotted in South Korea drinking beer with Samsung Chairman Lee Jae-yong and other business leaders, according to local media. Other Korean companies, including SK Group and Hyundai, are also deploying similar amounts of GPUs, Nvidia said.

“We’re working closely with the Korean government to support its ambitious leadership plans in AI,” Raymond Teh, Nvidia’s senior vice president of Asia-Pacific, said on a call with reporters on Wednesday.

The partnerships support Huang’s claim on Tuesday that Nvidia has a book of business that totals $500 billion from its current generation GPU, called Blackwell, in addition to its next-generation GPU, called Rubin....

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"Europe preps Digital Euro to enter circulation in 2029"

From The Register, October 31: 

Because fewer people like banknotes, and payment sovereignty is a problem

The Governing Council of the European Central Bank (ECB) has decided the bloc needs a digital version of the Euro, and ordered work that could see it enter circulation in 2029.

Europe initiated a “preparation phase” for a Digital Euro in November 2023. Yesterday, the ECB said that effort succeeded. ECB President Christine Lagarde said developing a Digital Euro will make the currency “fit for the future.”

Asked why the European Union needs a Digital Euro, and if it is a solution in search of a problem, Lagarde said “The key points for me are : Money is a public good; central banks are the custodian of that public good; and central money issued by central banks has to have its digital form, because we're moving into a different era where not everybody will want necessarily to have banknotes.”

A digital currency would also reduce the European Union’s reliance on payment service providers from outside the bloc.

Fabio Panetta, Governor of the Bank of Italy, pointed out that European banks represent only a third of digital payments activities within the Eurozone, and that “Two thirds of digital payments in the Euro area are intermediated by non-European companies, both for digital payments at the point of sale and digital payments online.”

“The reason why this is so is that European banks did not agree until now on ways to provide their services to the entire Euro area,” he said. “They don't have what is called in technical terms a ‘rail’, the infrastructure to provide, to offer their digital payment services to all European citizens.”....

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As with so many things, the future is closer than it appears. 

"China Factory Activity Gauge Signals Deepening Manufacturing Gloom"

From the Wall Street Journal, October 30:

The official manufacturing purchasing managers index slid to 49.0 for October, from 49.8 in September 

An official gauge of China’s official manufacturing activity fell markedly for October, signaling mounting growth headwinds in the world’s second-largest economy at the start of the final quarter of the year.

The official manufacturing purchasing managers index slid to 49.0 for October, from 49.8 in September, China’s National Bureau of Statistics said Friday.

The result missed the 49.6 forecast by economists in a Wall Street Journal survey, marking the seventh straight month below the 50 threshold that separates activity expansion from contraction.

The production subindex declined to 49.7 from 51.9 in September, ending five months of expansion. The subindex for total new orders slid to 48.8 in October from to 49.7 in September, while new export orders fell to 45.9 from 47.8 in September....

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To anthropomorphize, Chinese equities seem rather dispirited, with the CSI 300 index down 48.14 (-1.02%) at 4,661.77. 

"Amazon stock soars 11% after topping Q3 estimates with $180B in revenue, $21B in profits" (AMZN)

From Seattle's own, GeekWire, October 30:

Amazon beat estimates for its third-quarter earnings with $180.2 billion in revenue, up 13% year-over-year, and earnings per share of $1.95, up from $1.43 in the year-ago period.

• Net income was $21.2 billion, up from $15.3 billion last year.
• Wall Street expected $177.7 billion in revenue, and earnings per share of $1.56.

Amazon shares were up more than 11% in after-hours trading. Growth in the company’s stock has lagged behind rivals Microsoft and Google this year.

Investors were likely pleased with a re-acceleration in Amazon’s closely watched cloud computing unit, which reported $33 billion in sales, up 20% year-over-year and topping analyst estimates. In a press release, Amazon CEO Andy Jassy said AWS is “growing at a pace we haven’t seen since 2022.”

“We continue to see strong demand in AI and core infrastructure, and we’ve been focused on accelerating capacity — adding more than 3.8 gigawatts in the past 12 months,” Jassy added.

The cloud growth should help Amazon counter the Wall Street narrative that its cloud business is falling behind Microsoft and Google in pursuing the AI opportunity.

• Amazon and other cloud giants are pouring billions of dollars into capital expenditures to support AI initiatives. Amazon said earlier this year it expects to increase capital expenditures to more than $100 billion in 2025.
• The company makes most of its operating profits from AWS — $11.4 billion in the third quarter, more than half Amazon’s total operating income.
• AWS was hit with a major outage last week that took down several major sites and services. It blamed an internal issue within the cloud giant’s infrastructure.

Amazon’s overall operating income reached $17.4 billion in the third quarter — flat compared to a year ago. The company had forecast operating income of $15.5 billion to $20.5 billion....

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"Meta stock plunges more than 10% as analysts cut price targets on sky-high AI spending" (META)

From Yahoo Finance, October 30:

Meta (META) stock took a beating on Thursday after the company said during its third quarter earnings report that it plans to further hike AI spending for the rest of this year and in 2026.

Shares of Meta fell more than 11% midday as Wall Street analysts and investors digested the news.

CEO Mark Zuckerberg summed up the spending plan as a means to keep up with the demand for AI, but he said that if the company overbuilds, it can absorb the extra computing capacity in the future.

"We keep on seeing this pattern where we build some amount of infrastructure to what we think is an aggressive assumption, and then we keep on having more demand to be able to use more compute, especially in the core business," Zuckerberg explained.

"I mean, it's, of course, possible to overshoot that right?" he added. "And if we do … then, you know, we see that there's just a lot of demand for other new things that we'd build internally, externally … almost every week, people come to us from outside the company, asking us to stand up an API [application programming interface] service or asking if we have different compute that they could get from us, and we haven't done that yet."

In a worst-case scenario where Meta builds too much capacity that goes unused, Zuckerberg said it would mean the company simply prebuilt what it will need in the future, though it would also have to contend with some losses and depreciation.

That's not exactly what Wall Street wanted to hear, though....

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 The stock is down $81.81 at $669.86

And at Bloomberg:

October 30, 2025 at 5:01 AM PDT

Updated on

October 30, 2025 at 11:01 AM PDT 

Meta to Sell $30 Billion of Bonds in Year’s Biggest Offering 

Earlier:

 "Meta Tumbles, Microsoft Slides, Alphabet Soars After Mag 7 Earnings Deluge" (GOOG; META; MSFT)

For some reason I keep thinking of this from January:

Climateer Line Of The Day: Microsoft CEO Edition (MSFT; ORCL; ARM; ELON)

Comparing Stargate with financing for his own AI infrastructure buildout plans:

“Look, all I know is, I’m good for my $80 billion,” said Nadella, laughing.

"How Affluent Investors Are Using Options Math to Borrow on the Cheap"

Ha! What was old is new again.*

From Bloomberg, October 29:

In late 2021, as the housing market overheated and the Federal Reserve’s benchmark interest rate hovered near zero, Tony Yang found an unconventional way to fund his down payment.

He logged into his Charles Schwab brokerage account, built a trade he’d discovered on Reddit — and unlocked about $650,000 to help finance a Bay Area home.

The trade, dubbed a “box spread,” carried a kind of mystique. By combining two opposing options positions — one bullish, one bearish — Yang built a strategy that mimics a fixed-rate loan: upfront cash now, repayment at a set date, and a locked-in cost in between.

Yang used it to borrow at just 1.6% for five years — well below the rate on his traditional mortgage — creating a down payment without having to sell assets he wanted to keep in the market.

“The stock market was doing really well in 2021, and I felt it was a bad time to sell to make the down payment in cash,” said Yang, who was working for payments company Stripe Inc. at that time. “Borrowing against it keeps me in the market and avoids capital gains tax.”

Now, that same strategy powers SyntheticFi, a San Francisco-based fintech Yang co-founded to help others do the same.

Box spread loans, also called synthetic borrowing, aren’t accessible to every buyer. They require sizable portfolios to back them. But for those with the assets, they offer speed, flexibility, and often a lower cost than traditional bank credit — plus potential tax advantages.

Once a tool for hedge funds and family offices, box-spread loans now sit alongside direct indexing, custom portfolios, and options overlays — all pitched as tax-efficient ways to gain financial control. For affluent investors, they’re a means to stay invested, defer taxes, and unlock liquidity without touching traditional lenders.

It’s part of a broader shift: strategies built for institutional desks are being repackaged as personal-finance hacks for a new kind of well-heeled borrower — risk-tolerant, control-seeking, and comfortable navigating complexity. They’re not avoiding debt; they’re engineering it on their own terms.

The approach is catching on among wealth advisers. Tyler Miles, managing director at Wedmont Private Capital, in July made a cash offer for a four-bedroom house in Howard County, Maryland. Working with SyntheticFi, he was able to close the deal the following month.

“I didn’t even look at a traditional mortgage,” he said. “We wanted to be competitive, we wanted to be able to close quickly, and that wasn’t going to fit that timeline.”

This year, Miles has advised a dozen clients on similar financing, using the loans to fund vehicle purchases, new business ventures, and more.

In a box spread, two sets of options with matching strike prices — call spreads and put spreads — create predictable cash flows that closely mimic fixed income. By selling one, an investor receives a lump sum of cash upfront, and agrees to pay a preset amount at maturity. It’s a strategy that behaves predictably — until markets act up.

The gap between what the investor receives upfront and repays at maturity determines the effective interest rate — now roughly 5 to 20 basis points above comparable Treasury yields, according to Vest Financial, a $54  billion derivatives-based asset manager that officially launched its synthetic‑borrow platform this week.

“We have taken the financing that’s embedded in the option market, which is institutionally priced, and we’ve delivered it” to the retail market, said Karan Sood, Vest’s chief executive officer.

Box spreads have long been a trading tool on Wall Street, used to shift money across books or lock in small pricing gaps. What’s changed is who’s using them. SyntheticFi has brought on more than 100 financial advisory firms to guide clients through the process. To users, it feels like a faster, cheaper alternative to a bank loan. There’s no credit check, no underwriting — just a few clicks to convert investment holdings into cash.

“It’s a low-interest-rate loan against your own assets with some interesting bells and whistles,” said Chris Whitaker, chief wealth manager at Apriem. One of his clients recently used the strategy to finance a boat.

Synthetic borrow could disrupt the lending environment, according to Sam Gaeta, founder of Defined Financial Planning.

“Banks often rely on other value-added services, such as securities-backed lending, to win wealth management business,” he said. “If we can offer a solution that allows clients to access liquidity using the margin power of their investment portfolio at an implied interest rate similar to the risk-free rate, the banks lose some of that leverage in their value proposition to clients.”

But the math only works if the market does. If stocks fall, so does the value of the collateral. That triggers margin calls — the same mechanism that has unraveled countless trades in past downturns. If the client can’t post more collateral, their portfolio gets liquidated. The promise of frictionless money becomes forced selling....

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*Back in the day, Russell Sage offered a similar product and became very, very wealthy.

November 2015 - "Derivatives And Usury: The Role Of Options In Transactions Used To Act In Fraud Of The Law"

I have been meaning to put together a post on Russell Sage, one of my heroes, for pretty much the lifetime of this blog and now, thanks to the power of procrastination, I don't have to.
A quick search of the blog shows only one mention of Sage, the fact that in Forbes' first rich list in 1918, Mr. Sage's widow, Olivia, clocked in as the second-richest woman in America.

August 2019 -  "The Early History of Regulatory Arbitrage" (How Put-Call Parity Helped Russell Sage Evade the Law And Become Rich)

Really rich.
Banker to the Vanderbilt's rich.
One of the richest Americans of all time rich.
Some day I'll get around to doing a post on Mr. Sage, he was an interesting person.
As was Olivia , Mrs. Sage, the distaff side of the family parity.

If interested see also: September 2020 - The Grand-Père Of Option Pricing Theory: Louis Bachelier:

***** 

....Now what Bachelier was about to do wasn't quite at the level of Leibniz or Newton inventing the calculus but it was orders of magnitude beyond the state of the art as practiced by Russell Sage, who amassed one of the greatest Wall Street fortunes of his day, $3 billion or so in 2020 dollars, based on simple put/call parity to evade New York state usury laws.

Here's the introduction to a 2012 post where I decided to go with Bachelier rather than Sage:  
The Guy Who Discovered Black-Scholes Before Mssrs. Black and Scholes

Okay, not all of B-S but enough that if anyone had been paying attention they could have made money off the young man's work.

I was going to do a post on the King of 19th century put and call brokers but you may find this more interesting.....

But back to Professor Bernstein's letter, he notes that the B-man's thesis advisor was Henri Poincaré, which is a pretty good start but additionally links to

Louis Bachelier 

On the centenary of Théorie de la Spéculation 

which begins:

Centenary of mathematical finance
The date March 29, 1900 should be considered as the birthdate of mathematical finance ....

Alrighty then, a pretty big deal. If interested see also:
"Pricing the Future: Finance, Physics, and the 300-Year Journey to the Black-Scholes Equation "

Variables: σ = volatility of returns of the underlying asset/commodity;
S = its spot (current) price; δ = rate of change; V = price of financial derivative;
r = risk-free interest rate; t = time.

Finally a cautionary tale from a very smart guy: 

"Volatility as the new Black-Scholes" (VIX; VXX; CVOL)

And Olivia? Our links have rotted so here's the Internet Archive:

America's Richest
Page 15 of 17 from The First Rich List
B.C. Forbes, 09.27.02, 12:00 PM ET

Our 30 Richest Americans

Name Estimated Fortune 2002 Dollars* Yearly Income Chief Source John D. Rockefeller $1,200,000,000 $13.14 billion $60 million Oil Henry Clay Frick 225,000,000 2.46 billion 11.25 million Coke, Steel Andrew Carnegie 200,000,000 2.2 billion 10 million Steel George F. Baker 150,000,000 1.64 billion 7.5 million Banking William Rockefeller 150,000,000 1.64 billion 7.5 million Oil, Railroads Edward S. Harkness 125,000,000 1.37 billion 6.25 million Oil J. Ogden Armour 125,000,000 1.37 billion 6.25 million Packing Henry Ford 100,000,000 1.09 billion 5 million Automobiles William K. Vanderbilt 100,000,000 1.09 billion 5 million Railroads Edward Howland Robinson Green 100,000,000 1.09 billion 5 million Banking Mrs. Edward H. Harriman 80,000,000 876 million 4 million Railroads Vincent Astor 75,000,000 821 million 3.75 million Real Estate James Stillman 70,000,000 767 million 3.5 million Cotton, Banking Thomas F. Ryan 70,000,000 767 million 3.5 million Traction, Tobacco Daniel Guggenheim 70,000,000 767 million 3.5 million Mining, Smelting Charles M. Schwab 70,000,000 767 million 3.5 million Steel J.P. Morgan 70,000,000 767 million 3.5 million Banking Mrs. Russell Sage 60,000,000 657 million 3 million Banking Cyrus H. McCormick 60,000,000 657 million 3 million Farm Machinery Joseph Widener 60,000,000 657 million 3 million Traction Arthur James 60,000,000 657 million 3 million Mining, Railroads Nicholas F. Brady 60,000,000 657 million 3 million Tractions Jacob H. Schiff 50,000,000 547.5 million 3 million Banking James B. Duke 50,000,000 547.5 million 2.5 million Tobacco George Eastman 50,000,000 547.5 million 2.5 million Cameras Pierre S. du Pont 50,000,000 547.5 million 2.5 million Powder Louis F. Swift 50,000,000 547.5 million 2.5 million Packing Julius Rosenwald 50,000,000 547.5 million 2.5 million Mail Orders Mrs. Lawrence Lewis 50,000,000 547.5 million 2.5 million Oil Henry Phipps 50,000,000 547.5 million 2.5 million Steel TOTAL 3,680,000,000 40.3 billion 184 million

 

"Xi May Have Miscalculated on Rare Earths"

A miscalculation that, if not as portentous as the situation after Pearl Harbor—encapsulated in the quote attributed to Admiral Yamamoto (he probably didn't say it in so many words but had expressed similar beliefs elsewhere) is similar:

"I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve" 

What China did is remind the West of their choke hold over the supply chain, a reminder of what they did to Japan last decade, and that reminder could very well lead to a rare earths Manhattan Project to scour the planet for supply and bulldoze through any red tape inhibiting processing.

From Foreign Policy, October 24 i.e. before today's Trump - Xi agreements:  

China’s complex new rules take on the entire world at once—and give Trump an opportunity.

The current trade confrontation between the United States and China may look like a repeat of the episode from earlier this year: Washington has rolled out sky-high tariffs, while China has clamped down on the supply of rare earths. Many observers, reportedly including Chinese President Xi Jinping, expect the outcome will be the same, too: markets slide, American manufacturers warn of shuttered factories, and U.S. President Donald Trump backs down.

Yet if Trump plays his cards right, Xi may find he has miscalculated. Several big factors that hurt the United States in the spring are now playing in its favor. For starters, China’s complex new rules will be far harder to enforce than its earlier restrictions. The global scope of those rules also means that this time, it is Beijing, not Washington, that has escalated first—and done so by taking on the entire world at once. That gives the Trump administration a chance to build an international coalition, rather than facing one itself. Meanwhile, one of the main drivers of Trump’s earlier walk back, the U.S. bond market, is far more quiescent than it was in April.

Alongside those advantages, the Trump administration and U.S. allies have far more effective responses than Trump’s proposed tariffs, which will hurt the U.S. economy as much as China’s. Plausible options include curbing China’s tech sector, limiting low-value Chinese imports, and going after companies buying Russian oil. The real question is whether the administration will use them.

China’s new restrictions on rare earth sales come with a twist. Instead of simply controlling the export of rare earths from China—the move it made in April—Beijing announced that it will require a license for any cross-border sale worldwide. That means a distributor in France that resells Chinese-origin rare earth magnets to a German auto manufacturer will need a license from the Chinese Ministry of Commerce. China’s new rules also specify that buyers tied to foreign militaries will have their applications denied, and companies producing advanced semiconductors will get extra scrutiny.

Thanks to Chinese dominance in rare earth processing—China controls about 90 percent of the market for turning rare earths into usable metals—its rules will affect a wide range of industries and consumer products. Rare earths are present in numerous defense systems, including fighter jets, warships, missiles, and drones. Permanent magnets are used to make all kinds of electronics, from everyday devices like air conditioners to more specialized equipment like industrial robots. Makers of weapons systems, electric vehicles, batteries, and telecommunications equipment are at particular risk.

Why did China announce these controls now? Commentators have offered two primary explanations. The first is that Beijing is aiming to gain leverage in the midst of trade negotiations. The second is that it was merely responding to recent actions by the Trump administration, including a change to the treatment of subsidiary companies on the U.S. export control list, that it saw as a violation of the trade truce agreed to earlier this year.

U.S. actions may have driven the specific timing of China’s rules, but the scale of the response suggests a calculated escalation driven by a perception of weakness on the U.S. side. After seeing Trump rapidly abandon his global tariffs in April, Xi likely believes the United States cannot endure a prolonged confrontation. Chinese negotiators have reportedly become frustrated that the U.S. side has so far refused to remove all tariffs and technology export controls; they may believe that by threatening supplies of critical minerals once again, they will bring the Trump administration around. Convenient as it may be for Beijing to argue that the United States broke the cease-fire, China’s escalation was probably driven just as much by a desire to gain greater leverage over what it likely sees as a chaotic and reactive U.S. administration.

As dramatic as the U.S. reaction to the new rules has been, the rules’ bark may be worse than their bite. Beijing has a habit of announcing export control actions only to largely let goods flow anyway. In 2022, the Chinese government published a list of technologies it was considering controlling, including LiDAR sensors used in self-driving cars, CRISPR tools for gene editing, and equipment used to make solar panels. Three years later, little on the list has actually been controlled. In 2023, China started requiring licenses to export gallium and germanium, and in 2024, it added antimony to the list. Yet exports of all three have continued. Some importers have periodically struggled to get licenses, but Beijing has seemingly used the requirement more to gather data than to block sales.

Chinese policymakers have already begun to signal that they will be similarly flexible this time around. On Oct. 11, a spokesperson noted that the controls “are not export bans” and emphasized that “licenses will be granted.” Although Western defense companies are likely to be shut off, for other buyers, the effect is likely to be more muted. “Provided the export license applications are compliant and intended for civilian use, they will be approved,” a Commerce Ministry spokesperson said on Oct. 16. Although the rules call out chip producers, some chip companies have built stockpiles to cushion against shutoffs, and the elements controlled by the rules are less central to chipmaking than to other industries.

China will also find enforcing its new rules a tricky business. Earlier this year, its approach involved requiring a license for all exports of specific minerals, not trying to single out individual industries or track sales abroad. Resuming that approach, this time with truly global rules, would cause short-term chaos but would also help unite the world against China’s tactics...

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Some of the China - Japan history 2010 - 2013:

https://climateerinvest.blogspot.com/search?q=China+Japan+rare+earths