How China's DeepSeek Could Disrupt Financial Markets and Global Stability

How China's DeepSeek Could Disrupt Financial Markets and Global Stability

China’s DeepSeek artificial intelligence (AI) platform has stunned the world, outperforming US AI models while using just a fraction of their resources. Some are even calling it the "OpenAI killer."

What’s your take on this development?

Technology—all technologies—inevitably become better and cheaper over time. That trend has been in motion, at an accelerating rate, since at least the end of the last Ice Age about 12,000 years ago. Since the start of the Industrial Revolution about 200 years ago the hyperbolic curve has gone vertical.

Why, therefore, has DeepSeek surprised everybody? Its arrival is part of a very established and obvious trend. I’m just amused by the ironic fact that no existing AIs seem to have predicted it.

That being the case, somebody, or AI itself for all we know, has already come up with something even better than DeepSeek. That’s inevitable. "They" say that very soon AI will be vastly smarter, and arguably wiser, than humans. If so, maybe it will be kinder and gentler too. Unless its programmers have bad intentions—which is quite likely.

 President Trump recently announced a $500 billion investment in AI development to secure US dominance in the industry.

However, with DeepSeek’s arrival, OpenAI and other US models may already be obsolete.

Is Trump’s $500 billion plan a necessary investment—or a boondoggle in light of DeepSeek’s advancements?

I’m not a computer nerd—far from it—but I am a technophile.

Looking at the history of technology, starting with Heraclitus, Leonardo, Edison, the Wright Brothers, Steve Jobs, and thousands of others, almost all of the great breakthroughs in history have been made by individual geniuses working on their own or with small groups. Getting the government involved would almost certainly be a gigantic mistake.

Sure, they can throw a lot of other people’s money at things. But it’s always a grossly inefficient and wasteful allocation of capital when they do. Their cubicle dwellers, drones, and bureaucrats do things that are personally or politically productive but not necessarily economically productive. At a minimum, the money is taken from productive use by society at large.

You should recognize that since the nature of government is coercion and force, its AI spending—likely shepherded by outfits like the NSA, CIA, and FBI—will probably result in SkyNet and an army of Terminators. Life increasingly mimics art as technology advances.

Like every other government project, it will likely turn into a boondoggle. And yes, I suppose there have been exceptions, like the early days of NASA after the Russians launched Sputnik. Ten years later, the US was on the moon. But NASA has since devolved into just another bureaucracy. Proving that even a blind squirrel can sometimes find a nut.

 With DeepSeek emerging as a dominant AI force, could this mark the beginning of China surpassing the US not just in AI but in overall technological and economic leadership?

What are the broader implications?

Let me reiterate how happy I am that Kamala Harris and the Jacobins weren’t elected. Because, among many other reasons, it was their stated intent to centralize all AI, which would’ve slowed progress down tremendously and would have turned it towards bad intentions.

But now it seems Trump wants to do the same thing with his $500 billion initiative. Some politicians are obviously worse than others, but the real problem is the institution of the State itself.

Regarding China, we have to recognize that it was only in 1980 that Deng Xiaoping transformed the country from a clumsy behemoth full of ignorant peasants beating on dirt with sticks to a country as technologically advanced as the US. He didn’t do it with new government programs. He simply got the government out of the economy.

The Chinese people have made unbelievable progress in the last 40 years, and I think that’s going to continue. Unbeknownst to most people in the West, China has about six special economic zones like Guangzhou, which is right next to Hong Kong. They’re almost independent countries within China, with essentially no regulation and minimal taxes.

China has approximately four times the population of the US, and most of the students in Chinese universities take STEM courses. They take them seriously. Unlike most Americans, who tend towards soft and easy courses. Many of the kids who do take STEM courses in the US are from China, and return there. In 2020, the Chinese had 3.57 million STEM graduates, and the US had only 820,000.

Americans have accepted the silly meme "We think, they work." But the fact is that the Chinese think just as well as we do. And they work much harder; the place has become the world's factory.It’s also said that the Chinese steal our technology. But the fact is that if you steal things, especially in high-tech, you deny yourself the fundamentals necessary to improve things from there. Theft is self-defeating, much like copying someone’s homework in school.

The Chinese are not stealing so much as imitating. Monkey see, monkey do. In the early days of the US, the British complained of Americans stealing their technology. But Isaac Newton had it right when he said that he could see further than others only because he could stand on the shoulders of giants. That’s how everybody advances, by standing on each other’s shoulders—not by theft.

 What role should the US government play in shaping the future of AI?

Should it actively counter China’s push for AI supremacy or take a more hands-off approach to disruptive technologies?

 The simple answer is no. Zero. The "best and brightest" people—as they like to style themselves—never work for the government. It attracts drones and bureaucrats. There’s really nothing that the US government can bring to the party, other than money extracted from other parts of the economy. Who can say that the things that aren’t created because of that won’t be far more valuable than whatever they put into AI?

Anyway, AI itself is improving exponentially. We’ll soon be at artificial generalized intelligence (AGI) and then super artificial intelligence. AI won’t just duplicate human thought but think more broadly and deeply than humans. That could be wonderful. Unfortunately, anything the government does will emphasize conflict. The Department of Defense, NSA, CIA, FBI, and similar agencies will have massive inputs.

We may yet get SkyNet and the Terminator; they’ll be government projects for "national security" reasons. In fact, bipedal Terminators are now here. Highly intelligent robots have physical capabilities beyond those of top Olympic athletes. The technology is taking on a life of its own. That said, corporations can certainly be stupid and evil. But their essence is making a profit by producing consumer goods.

Following DeepSeek’s launch, we saw a sharp decline in US tech stocks.

What does this mean for investors? How do you think markets will respond to China’s AI breakthrough?

 Markets respond to hype and fantasy in the short run but reality in the long run. China’s AI breakthrough is a reality. It provides a better product for a fraction of the cost.

There’s an old saying: "High-tech, big wreck." Last week provided an example, with NVIDIA losing hundreds of billions of market cap overnight. It was inevitable. Roughly 30% of the S&P’s value is in just seven tech stocks. That’s borderline insane and one of many indicators showing how overpriced the whole market is.

I don’t see any investment opportunities in high-tech or AI unless you can find a couple of geniuses in a garage who need some startup capital. But the odds of that are extremely small.

Absolutely everybody and his dog is aware of the tech market. And everybody who wants to be in it is already in it. Which is why these stocks are so unbelievably pricey at this point.

The answer to the question is that you should learn to use AI yourself. Rather than looking for investments in these gigantic stocks, you should use AI yourself to create businesses or improve your personal situation. It’s been said that any sufficiently advanced technology is indistinguishable from magic. You now have veritable magic at your command.

Don’t look to gamble with your money, throwing it at some huge black box company; you don’t know what’s in the black box. Instead use their products, which are not only magical, but free. Their data centers, costing multibillions, will probably soon be obsolete as AI gets smaller and cheaper. That won’t be good for shareholders.

As for me, I continue to save in gold, the only financial asset that’s not simultaneously someone else’s liability. That’s worked out very well so far, and it will continue to do so. I continue to speculate in generally crappy little resource stocks. They’re finally starting to perk up, and I expect that—at long last—they’ll have a massive day in the sun.

Editor's Note: Are you looking for life-changing rewards as the gold bull market takes off?

Are you trying to find the best companies among the over 2,000 mining stocks, but don't know how to go about it?

Then we've got great news for you! We just released an exclusive dispatch to show you everything you need to know.