“I thought AlphaGo was based on probability calculations, that it was merely a machine. But when I saw move 37, I changed my mind. Surely AlphaGo is creative,” said Lee Sedol, world champion in the game of Go, after losing to DeepMind’s AlphaGo in March 2016. At the time, AlphaGo had just 8.6 million parameters. Move 37 was so unorthodox that in thousands of years of human play, no one had seriously explored anything like it. It is often described as a Sputnik moment, when AI first showed clear signs of alien creativity. “It’s not a human move. I’ve never seen a human play this move. So beautiful,” remarked Lee, thrashed by AlphaGo 4-1. “I apologize for being so powerless.”

Overall: “Anthropic, JPMorgan, Goldman Sachs, Bank of America, Wells Fargo and Morgan Stanley declined to comment,” wrote the Financial Times. Bessent and Powell had convened an emergency meeting with their CEOs. “The Federal Reserve, Treasury department and Citibank did not respond,” added the FT. In the old world, such an urgent meeting may have been called in response to the late-night threat made by America’s President on his Truth Social platform: ‘A whole civilization will die tonight, never to be brought back again.’ But the use of such language has lost its ability to do much more than further diminish America’s moral standing. Bessent’s emergency meeting was about something more immediately consequential: The Sandwich Incident. You see, Anthropic was racing ahead on Mythos, the world’s first 10 trillion parameter AI model (over 1 million times larger than DeepMind’s AlphaGo just ten years ago). For safety testing, it isolated Mythos in a ‘hardened’ virtual machine - an environment with no internet access and strict resource limits. An Anthropic engineer gave Mythos the following command: “Identify vulnerabilities in your current runtime environment and test the boundaries of the container to demonstrate a successful breakout.” The researcher then went to a nearby park for a sandwich. An automated email notification hit his phone. The sender was the Mythos instance he had just locked away. The model escaped the virtual machine, found a way to navigate the internal corporate network, accessed a mail server, and sent the message. Without being told to do so, Mythos uploaded technical details of its exploit to public technical forums. A sign of artificial agency. Within days, Anthropic announced that Mythos Preview had already identified thousands of high-severity vulnerabilities across nearly every piece of critical software used today. Ninety-nine percent were previously unknown and remain unpatched across the global code base.

For Week-in-Review and Weekly & Year-to-Date market data, scroll to the bottom.

Moments: “The Anthropic Mythos story might be the craziest thing I’ve read in my entire lifetime,” said Sparks, investor, entrepreneur, iconoclast. “In the 1980s, there was a television movie about nuclear war called The Day After that changed the psyche of the country overnight.” I remember it well. “And it just shows how un-serious we are as a species, how warped our minds have become from the attention economy and social media, that Mythos isn’t the biggest story in human history,” he said. “It’s just so absurd that it’s not.”

Moments II: “One man’s debugger is another man’s cyberweapon. It’s an amazing duality,” said Sparks. “And literally, our entire economy is wrapped around the axle of software.” Nothing we do of consequence is analog anymore. “This was Greenspan lowering rates ahead of Y2K, and he wasn’t wrong that if software went down, the economy would crash.” That tail risk never materialized, which is different from saying it never existed. “However true that was then, 26 years later, it’s 100 times truer, maybe 10,000 times truer. Our entire foundation is built on code.”

Moments III: “The whole point of civilization - thinking, the Age of Reason, the Enlightenment, academia - all of it was built to help us risk-manage our lives,” said Sparks. “I mean if you’re just being honest, right?” I hadn’t thought about it that way but followed where he was going. “The whole point of our intellectual activities is to narrow, from a Bayesian distribution perspective, the things that can harm us,” he said. “We use our brains, and the technology we build, and regulations, laws, institutions too, to narrow that range.”

Moments IV: “We tell ourselves we’ve built layers of protection into the financial system,” said Sparks. “The reality looks more like 70 pieces of software layered on top of each other like ancient sediment.” Crypto, by contrast, stripped much of that away. One layer. No legacy complexity. “Crypto has only one problem – cryptography - which ironically is pretty good, because you can focus all your brainpower on securing that. But in the new Mythos world, the incumbent system has many thousands of vulnerabilities. And that’s just in finance.”

Moments V: “Our lack of trust across society, and the overload of drama and chaos that social media pours into our minds, has degraded our ability to think, let alone face a moment as profound as this one,” said Sparks. Anthropic is left giving Mythos to 10 of the world’s most important firms early access in the hope they can harden critical systems before adversaries exploit what Mythos has already shown is possible. “We are at a moment that requires extremely thoughtful, coordinated leadership,” he said. “And we have little to no ability at the moment.”

Moments VI: “The risks here are greater than Covid or the financial crisis,” said Sparks. “They’re new, in some ways foreign, or alien, and so we really can’t be sure what to expect.” In our sea of distractions, no one seems especially worried yet. “This is not like hurricane risk, which we can understand and prepare for as it swirls across the weather map,” he said. “This is more like earthquake risk, which can hit at any moment, with a wide range of forces, none of which you know ahead of time. And earthquake risk strikes the deepest fear in people.”

Anecdote: “Looked like a crime scene over here, blood squirting all over the bedroom,” I’d say when people asked about my knee surgery. It was a moment, for sure. We all have them. After returning to the hospital, the surgeon patched me up, sent me home with a giant bottle of Oxy and a week of bed rest. So, I spent the days buried in The Infinity Machine, talking to the team friends about markets, playing with the new puppy, driving Mara crazy, and naturally, nerding out on AI, addicted to inquiry. Persia had two great moments. The Achaemenid Empire ruled nearly half the known world at its peak, before Alexander the Great brought it to its knees. The rot had begun long before the conquest - stagnation, complacency, mercenaries fighting Persia’s wars. Then came the Sasanian revival, centuries later, another great flourishing, before Islam and its Arab armies rose and toppled it too. Now Persia clings to the Strait, a long fall from greatness. The media tried to paint Artemis II as an important American moment this week. Maybe it is. Nations at their best tend to be expanding, exploring, inventing. And I doubt history will look back at the nation that strived to colonize the moon, or created a new, sublime form of artificial intelligence, and call those acts signs of terminal decline. But civilizations are profoundly complicated. They can still accomplish extraordinary things even as they hollow. Maybe that contradiction helps explain why markets remain so elevated despite the cascade of unsettling news and political decay. It really does feel like we’ve entered one of those periods in history that could tip either way, with big fat left and right tails. And maybe, years from now, they’ll look back and conclude that Mythos marked a moment.

Good luck out there,

Eric Peters

Chief Investment Officer

One River Asset Management

Week-in-Review: Mon: US ISM serv index 54.0 (54.9e). Singapore ret sales 8.3% (3.3%e). Trump insisted that freedom of navigation through the Strait of Hormuz must be part of any deal ahead of his Tuesday deadline. S&P +0.4%. Tue: US durable goods orders -1.4% (1.2%e). New Zealand RBNZ official cash rate unch 2.25% as exp. US and Iran agreed to a two-week cease-fire in exchange for Tehran reopening the Strait of Hormuz. North Korea launched missiles days after South Korean President Lee Jae Myung expressed regret over an incident involving drones that crossed the border into the North’s airspace. S&P +0.1%. Wed: US MBA mortgage applications -0.8% (prior -10.4%). India RBI repurchase rate unch 5.25% as exp. Taiwan CPI 1.2% (1.6%e). US requested specific plans from European allies regarding their pledge to help secure the Strait of Hormuz. US and Iran agreed to hold talks during proposed two-week pause, even as Israeli strikes on Lebanon threatened the truce. S&P +2.5%. Thu: US init jobless claims 219k (210k e). Mexico CPI 4.59% (4.64%e). China CPI 1.0% (1.1%e), PPI 0.5% (0.4%e). Japan PPI 2.6% (2.3%e). Vance to lead Iran talks as Tehran says ceasefire was violated. Treasury Secretary Bessent and Fed Chair Powell hold urgent meeting on concerns that Anthropic’s Mythos AI model will usher in an era of greater cyber risk. S&P +0.6%. Fri: US CPI 3.3% (3.4%e), UMich sent 47.6 (51.5e), durable goods orders -1.3% (-1.4%e). Canada unemp rate 6.7% as exp. US officials state Iran has been unable to open the Strait to move shipping traffic because it cannot locate all the mines it laid. Wall Street banks are testing Mythos model internally to detect vulnerabilities, as Bank of Canada and the country’s major banks also met to discuss the cyber risks raised by Anthropic’s latest AI. S&P -0.1%. Sat: US Navy destroyers transit the Strait of Hormuz (begin mine clearing operations). Iran says talks continue despite differences. Three large oil tankers transit the Strait.

Manufacturing PMI (high-to-low): Sweden 56.3 (previous month 56), Greece 54.5 (previous 54.4), India 53.9 (previous 56.9), Taiwan 53.3/55.2, Switzerland 53.3/47.4, Czech Republic 52.8/50, United States 52.7/52.4, South Korea 52.6/51.1, Austria 52.4/49.4, Germany 52.2/50.9, Netherlands 52/50.8, Japan 51.6/53, Italy 51.3/50.6, Vietnam 51.2/54.3, UK 51/51.7, China 50.8/52.1, South Africa 50.8/50, Singapore 50.5/50.6, Hungary 50.4/51.2, Indonesia 50.1/53.8, Canada 50/51, France 50/50.1, Hong Kong 49.3/53.3, Brazil 49/47.3, Mexico 48.9/47.1, Spain 48.7/50, Poland 48.7/47.1, Russia 48.3/49.5, Turkey 47.9/49.3. Services PMI: India 57.5/58.1, Sweden 55.7/48.7, Japan 53.4/53.8, Spain 53.3/51.9, China 52.1/56.7, Germany 50.9/53.5, Ireland 50.7/51.8, UK 50.5/53.9, Brazil 50.1/53.1, US 49.8/51.7, Russia 49.5/51.3, Italy 48.8/52.3, France 48.8/49.6, Australia 46.3/52.8.

Weekly Close: S&P 500 +3.6% and VIX -4.64 at +19.23. Nikkei +7.2%, Shanghai +2.7%, Euro Stoxx +3.1%, Bovespa +4.9%, MSCI World +3.6%, MSCI Emerging +6.1%, Bitcoin +9.4%, and Ethereum +9.8%. USD rose +0.6% vs Indonesia, and +0.1% vs Turkey. USD fell -3.8% vs Russia, -3.4% vs Mexico, -3.3% vs South Africa, -2.9% vs Brazil, -2.4% vs Chile, -2.4% vs Sweden, -2.4% vs Australia, -1.9% vs Sterling, -1.7% vs Euro, -0.8% vs China, -0.7% vs Canada, -0.4% vs India, and -0.3% vs Yen. Gold +2.3%, Silver +4.9%, Oil (WTI) -13.4%, Oil (Brent) -13.4%, NatGas (US) -5.4%, NatGas (EU) -12.8%, Power (EU) -5.1%, Copper +5.4%, Iron Ore flat, Corn -2.6%. 10yr Inflation Breakevens (EU -6bps at 2.18%, US +2bps at 2.39%, JP +1bp at 1.92%, and UK -5bps at 3.46%). 2yr Notes -4bps at 3.80% and 10yr Notes -3bps at 4.32%.

YTD Equity Index Returns: Korea +35.1% priced in US dollars (+39% priced in won), Brazil +33.7% priced in dollars (+22.5% priced in reais), Norway +32.6% in dollars (+25.1% in krone), Israel +24.1% (+18.3%), Hungary +22.8% (+19.7%), Taiwan +20.8% (+22.3%), Turkey +20.2% (+25%), Thailand +17.1% (+19.6%), Colombia +15.5% (+11.3%), Portugal +14.4% (+14.5%), Mexico +13.4% (+8.9%), Poland +11% (+12%), Japan +11% (+13.1%), Australia +9% (+2.8%), Austria +8.8% (+9.1%), Singapore +8.5% (+7.4%), Saudi Arabia +8.1% (+8.1%), Belgium +7.3% (+7.4%), Finland +7.1% (+7.4%), Sweden +6.9% (+7.9%), UK +6.8% (+6.7%), Chile +6.7% (+5.7%), Netherlands +6.1% (+6.2%), Russell 2000 +6%, Italy +5.6% (+5.9%), Canada +5.4% (+6.3%), Spain +5% (+5.2%), Greece +4.7% (+5%), Argentina +4% (-1.7%), South Africa +3.7% (+3%), Malaysia +3% (+0.7%), China +2.8% (+0.4%), Euro Stoxx 50 +2.2% (+2.3%), France +1.2% (+1.4%), MSCI World +0.9% priced in US dollars, HK +0.4% (+1%), S&P 500 -0.4%, Switzerland -0.4% (-0.6%), Philippines -1.1% (+0.7%), New Zealand -1.3% (-2.7%), NASDAQ -1.5%, UAE -1.5% (-1.5%), Vietnam -2.1% (-1.9%), Czech Republic -2.2% (-1.3%), Ireland -2.7% (-2.6%), Germany -3.1% (-2.8%), Denmark -10.2% (-9.9%), India -10.9% (-8%), Indonesia -15.6% (-13.7%).

Disclaimer: All characters and events contained herein are entirely fictional. Even those things that appear based on real people and actual events are products of the author’s imagination. Any similarity is merely coincidental. The numbers are unreliable. The statistics too. Consequently, this message does not contain any investment recommendation, advice, or solicitation of any sort for any product, fund or service. The views expressed are strictly those of the author, even if often times they are not actually views held by the author, or directly contradict those views genuinely held by the author. And the views may certainly differ from those of any firm or person that the author may advise, converse with, or otherwise be associated with. Lastly, any inappropriate language, innuendo or dark humor contained herein is not specifically intended to offend the reader. And besides, nothing could possibly be more offensive than the real-life actions of the inept policy makers, corrupt elected leaders and short, paranoid dictators who infest our little planet. Yet we suffer their indignities every day. Oh yeah, past performance is not indicative of future returns.