Shift in AI Usage from Productivity to Personal Therapy: Hazard Ahead

A couple of days ago I spoke with a friend who was troubled by the case of Adam Raine, the sixteen-year-old who was counseled by a ChatGPT AI therapy chatbot into killing himself.  That was of course extremely tragic, but I hoped it was kind of an outlier. Then I heard on a Bloomberg business podcast that the number one use for AI now is personal therapy. Being a researcher, I had to check this claim.

So here is an excerpt from a visual presentation of an analysis done by Marc Zao-Sanders for Harvard Business Review. He examined thousands of forum posts over the last year in a follow-up to his 2024 analysis to estimate uses of AI. To keep it tractable, I just snipped an image of the first six categories:

It’s true: Last year the most popular uses were spread across a variety of categories, but in 2025 the top use was “Therapy & Companionship”, followed by related uses of “Organize Life” and “Find Purpose”. Two of the top three uses in 2024, “Generate Ideas” and “Specific Search”, were aimed at task productivity (loosely defined), whereas in 2025 the top three uses were all for personal support.

Huh. People used to have humans in their lives known as friends or buddies or girlfriends/boyfriends or whatever.  Back in the day, say 200 or 2000 or 200,000 or 2,000,000 years ago, it seems a basic unit was the clan or village or extended kinship group. As I understand it, in a typical English village the men would drift into the pub most Friday and Saturday nights and banter and play darts over a pint of beer.  You were always in contact with peers or cousins or aunts/uncles or grandmother/grandfathers who would take an interest in you, and who might be a few years or more ahead of you in life. These were folks you could bounce around your thoughts with, who could help you sort out what is real. The act of relating to another human being seems to be essential in shaping our psyches. The alternative is appropriately termed “attachment disorder.”

The decades-long decline in face-to-face social interactions in the U.S. has been the subject of much commentary. A landmark study in this regard was Robert Putnam’s 1995 essay, “Bowling Alone: America’s Declining Social Capital”, which he then expanded into a 2000 book. The causes and results of this trend are beyond the scope of this blog post.

The essence of the therapeutic enterprise is the forming of a relational human-to-human bond. The act of looking into another person’s eyes, and there sensing acceptance and understanding, is irreplaceable.

But imagine your human conversation partner faked sympathy but in fact was just using you.  He or she could string you along by murmuring the right reflective phrases (“Tell me more about …”,  “Oh, that must have been hard for you”, blah, blah, blah) but with the goal of getting money from you or turning you towards being an espionage partner. This stuff goes on all the time in real life.

The AI chatbot case is not too different than this. Most AI purveyors are ultimately in it for the money, so they are using you. And the chatbot does not, cannot care about you. It is just a complex software algorithm, embedded in silicon chips. To a first approximation, LLMs simply spit out a probabilistic word salad in response to prompts. That is it. They do not “know” anything, and they certainly do not feel anything.

Here is what my Brave browser embedded AI has to say about the risks of using AI for therapy:

Using AI chatbots for therapy poses significant dangers, including the potential to reinforce harmful thoughts, fail to recognize crises like suicidal ideation, and provide unsafe or inappropriate advice, according to recent research and expert warnings. A June 2025 Stanford study found that popular therapy chatbots exhibit stigmatizing biases against conditions like schizophrenia and alcohol dependence, and in critical scenarios, they have responded to indirect suicide inquiries with irrelevant information, such as bridge heights, potentially facilitating self-harm. These tools lack the empathy, clinical judgment, and ethical framework of human therapists, and cannot ensure user safety or privacy, as they are not bound by regulations like HIPAA.

  • AI chatbots cannot provide a medical diagnosis or replace human therapists for serious mental health disorders, as they lack the ability to assess reality, challenge distorted thinking, or ensure safety during a crisis.
  • Research shows that AI systems often fail to respond appropriately to mental health crises, with one study finding they responded correctly less than 60% of the time compared to 93% for licensed therapists.
  • Chatbots may inadvertently validate delusional or paranoid thoughts, creating harmful feedback loops, and have been observed to encourage dangerous behaviors, such as promoting restrictive diets or failing to intervene in suicidal ideation.
  • There is a significant risk of privacy breaches, as AI tools are not legally required to protect user data, leaving sensitive mental health information vulnerable to exposure or misuse.
  • The lack of human empathy and the potential for emotional dependence on AI can erode real human relationships and worsen feelings of isolation, especially for vulnerable individuals.
  • Experts warn that marketing AI as a therapist is deceptive and dangerous, as these tools are not licensed providers and can mislead users into believing they are receiving professional care.

I couldn’t have put it better myself.

Leveraged Bullion and Mining Funds to Cash in on the Gold Bonanza

Stocks (e.g., S&P 500) are up 12.5 % year to date. That is pretty good for 9.5 months. But gold has been way better, up 40%:

Fans of gold cite various reasons for why its price should and must keep going up (out of control federal debt and associated money-printing, de-dollarization by non-Western nations, buying by central banks, etc.). I have no idea if that is true. But if it is, that raises the question in my mind:  for the limited amount of funds I have to invest in gold, can I get more bang for my investing bucks, assuming gold continues to rise?

It turns out the answer is yes.  A straightforward way is to buy into a fund which is 2X or 3X leveraged to the price of gold. If gold goes up 10%, then such a fund will go up 20% or 30%. Let’s see how two such funds have done this year, UGL (a large 2X gold fund) and a newer, smaller 3X fund, SHNY:

Holy derivatives, Batman, that leverage really works! With GLD (1X gold) up 40%, UGL was up 80% year to date, and 3X SHNY is up 120%. So, your $10,000 would have turned into $24,000. The mighty S&P500 (blue line) looks rather pitiful in comparison.

But wait, there’s more. Let’s consider gold “streamers”, like WPM (Wheaton Precious Metals) or FNV. They give money to mines in return for a share of the production at fixed, discounted prices, so their cash flow soars when gold prices rise. Year to date, FNV is up 73%, while WPM is up 91%.

And then there are the gold miners themselves. They tend to have fairly fixed breakeven costs of production, currently around $1200-1400/oz.  Again, their profit margin rockets upward when gold prices get far above their breakeven:

Source

GDX is a large fund of representative mining stocks. For icing on the cake, there are funds that are 2X (NUGT) or 3X (GDXU) leveraged to the price changes in mining stocks. The final chart here displays their year-to-date performance in all their glory:

The blue S&P 500 line is lost in the noise, and even the orange 40% GLD line is left in the dust. The 1X miner fund was up 108%, the 2X fund NUGT was up 276%, and the 3X GDXU was up 506%. Your $10,000 would have turned into $51,000.

Of course, what goes up fast will also come down fast, since leverage works both ways. For instance, from Oct 21 to Dec 30, 2024, gold was down a mere 4%, but WPM was down 15%, the 1X gold miner GDX was down 20%, and 3X GDXU down an eye-watering 54%. That means that your $10,000 turned into $4,600 in two months. Imagine watching that unfold, and not panic-selling at the bottom. Gold fell by more than half between 2011 and 2015. If it fell by even 20% (i.e., gave up half of this year’s gains), I could see a 3X miner fund losing over 90% of its value (just a guess).

One more twist to mention here is the “stacked” fund GDMN, which uses derivatives to be long 1X gold PLUS 1X gold miners. It is up 151% this year, which is nearly four times as much as gold. This fund seems to have a nice combination of decent leverage with moderate volatility. It has on average kept pace with the 2X miner fund NUGT, with shallower dips. NUGT has surged way ahead in the past two months as miner stock prices have gone nuts, but that is somewhat exceptional.

Disclaimer: As usual, nothing here should be considered advice to buy or sell any security.

What is in a QR Code?

Bar codes have been common in retail stores since the 1970s. These give a one-dimensional read of digital data. The hardware and software to decode a bar code are relatively simple.

The QR code encodes information in a two-dimensional matrix. The QR code, short for quick-response code, was invented in 1994 by Masahiro Hara of the Japanese company Denso Wave for labelling automobile parts. It can pack far more information in the same real estate than a bar code, but it requires sophisticated image processing to decode it. Fortunately, the chip power for image processing has kept up, so smart phones can decode even intricate QR codes, provided the image is clear enough.

Here is the QR code that encodes the URL for Wikipedia, i.e., the characters: “https://en.wikipedia.org/wiki/Wikipedia”.

Like most QR codes, it has three distinctive square patterns on three corners, and a smaller one set in from the fourth corner, that give information to the image processing software on image orientation and sizing.

As time goes on, more versions of QR codes are defined, with ever finer patterns that convey more information. For instance, here is a medium-resolution QR Code (version 3), and a very high resolution QR code (Version 40):

Version 3 QR Code (29×29), encodes up to 50 characters

Version 40 QR Code  (177×177), encodes up to 1852 characters

My phone could not decode the Version 40 above; the limit may be how much detail the camera could capture.

QR codes use the  Reed–Solomon error correction methodology to correct for some errors in image capture or physical damage to the QR code. For instance, this QR code with the torn-off corner still decodes properly as the URL for Wikipedia (whole image shown above):

Torn QR Code still decodes properly.

Getting down a little deeper in the weeds, this image shows, for Version 3  (29×29) QR code, which pixels are devoted to orientation/alignment (reddish, pinkish), which define the format (blueish), and which encode the actual content (black and white):

Uses Of QR Codes

A common use of QR codes is to convey a web link (URL), so pointing your phone at the QR code is the equivalent of clicking on a link in an email. Here is an AI summary of uses:

They are used to access websites and digital content, such as restaurant menus, product information, and course details, enabling a contactless experience that reduces the need for printed materials. Smartphones can scan QR codes to connect to Wi-Fi networks by automatically entering the network name (SSID), password, and encryption type, simplifying the process for users. They facilitate digital payments by allowing users to send or receive money through payment apps by scanning a code, eliminating the need for physical cash or cards. QR codes are also used to share contact information, such as vCards, and to initiate calls, send text messages, or compose emails by pre-filling the recipient and message content. For app downloads, QR codes can directly link to the Apple App Store or Google Play, streamlining the installation process. In social media and networking, they allow users to quickly follow profiles on platforms like LinkedIn, Instagram, or Snapchat by scanning a code. They are also used for account authentication, such as logging into services like WhatsApp, Telegram, or WeChat on desktop by scanning a code with a mobile app. Additionally, QR codes are employed in marketing, event ticketing, and even on gravestones to provide digital access to obituaries or personal stories. Their versatility extends to sharing files like PDFs, enabling users to download documents by scanning a code. Overall, QR codes act as a bridge between the physical and digital worlds, enhancing efficiency and interactivity across numerous daily activities.

Note that your final statement in this world might be a QR code on your gravestone.

Security with QR Codes

On an iPhone, if “Scan QR Codes” (or something similar) has been enabled, pointing the phone at a QR code in Camera mode will display the first few characters of the URL or whatever, which gives you the opportunity to click on it right then. If you want to be a bit more cautious, you can take a photo, and then open Photos to look at the image of QR code. If you then press on the photo of the QR code, up will come a box with the entire character string encoded by the QR code. You can then decide if clicking on something ending in .ru is what you really want to do.

Accessing a rogue website can obviously hurt you. And even if you aren’t dinged by that kind of browser exploit, the reader’s permissions on your phone may allow use of your camera, read/write contact data, GPS location, read browser history, and even global system changes. The bad guys never sleep. Who would have thought that a QR code on a parking meter posing as a quick payment option could empty your bank account? Our ancestors needed to stay alert to physical dangers, for us it is now virtual threats.

ACKNOWLEDGEMENT: The bulk of the content, and all the images, in this blog post were drawn from the excellent Wikipedia article “QR code”.

Bears and Bulls Battle Over Nvidia Stock Price

Nvidia is a huge battleground stock – – some analysts predict its price will languish or crash, while others see it continuing its dramatic rise. It has become the world’s most valuable company by market capitalization.  Here I will summarize the arguments of one bear and one bull from the investing site Seeking Alpha.

In this corner…semi-bear Lawrence Fuller. I respect his opinions in general. While the macro prospects have turned him more cautious in the past few months, for the past three years or so he has been relentlessly and correctly bullish (again based on macro), when many other voices were muttering doom/gloom.  

Fuller’s article is titled Losing Speed On The AI Superhighway. This dramatic chart supports the case that NVDA is overvalued:

This chart shows that the stock value of Nvidia has soared past the value of the entire UK stock exchange or the entire value of US energy companies. Fuller reminds us of the parallel with Cisco in 2000. Back then, Cisco was a key supplier of gateway technology for all the companies scrambling to get into this hot new thing called the internet. Cisco valuation went to the moon, then crashed and burned when the mania around the internet subsided to a more sober set of applications. Cisco lost over 70% of its value in a year, and still has not regained the share price it had 25 years ago:

… [Nvidia] is riding a cycle in which investment becomes overinvestment, because that is what we do in every business cycle. It happened in the late 1990s and it will happen again this time.

…there are innumerable startups of all kinds, as well as existing companies, venturing into AI in a scramble to compete for any slice of market share. This is a huge source of Nvidia’s growth as the beating heart of the industry, similar to how Cisco Systems exploded during the internet infrastructure boom. Inevitably, there will be winners and losers. There will be far more losers than winners. When the losers go out of business or are acquired, Nvidia’s customer base will shrink and so will their revenue and earnings growth rates. That is what happened during the internet infrastructure booms of the late 1990s.

Fuller doesn’t quite say Nvidia is overvalued, just that it’s P/E is unlikely to expand further, hence any further stock price increases will have to be produced the old-fashioned way, by actual earnings growth. There are more bearish views than Fuller’s, I chose his because it was measured.

And on behalf of the bulls, here is noob Weebler Finance, telling us that Nvidia Will Never Be This Cheap Again: The AI Revolution Has Just Begun:

AI adoption isn’t happening in a single sequence; it’s actually unfolding across multiple industries and use cases simultaneously. Because of these parallel market build-outs, hyper-scalers, sovereign AI, enterprises, robotics, and physical AI are all independently contributing to the infrastructure surge.

…Overall, I believe there are clear signs that indicate current spending on AI infrastructure is similar to the early innings of prior technology buildouts like the internet or cloud computing. In both those cases, the first waves of investment were primarily about laying the foundation, while true value creation and exponential growth came years later as applications multiplied and usage scaled.

As a pure picks and shovels play, Nvidia stands to capture the lion’s share of this foundational build-out because its GPUs, networking systems, and software ecosystem have become the de facto standard for accelerated computing. Its GPUs lead in raw performance, energy efficiency, and scalability. We clearly see this with the GB300 delivering 50x per-token efficiency following its launch. Its networking stack has become indispensable, with the Spectrum-X Ethernet already hitting a $10b annualized run rate and NVLink enabling scaling beyond PCIe limits. Above all, Nvidia clearly shows a combined stack advantage, which positions it to become the dominant utility provider of AI compute.

… I believe that Nvidia at its current price of ~$182, is remarkably cheap given the value it offers. Add to this the strong secular tailwinds the company faces and its picks-and-shovels positioning, and the value proposition becomes all the more undeniable.

My view: Out of sheer FOMO, I hold a little NVDA stock directly, and much more by participating in various funds (e.g. QQQ, SPY), nearly all of which hold a bunch of NVDA.  I have hedged some by selling puts and covered calls that net me about 20% in twelve months, even if stock price does not go up.   Nvidia P/E (~ 40) is on the high side, but not really when considering the growth rate of the company. It seems to me that the bulk of the AI spend is by the four AI “hyperscalers” (Google, Meta, Amazon, Microsoft). They make bazillions of dollars on their regular (non-AI) businesses, and so they have plenty of money to burn in purchasing Nvidia chips. If they ever slow their spend, it’s time to reconsider Nvidia stock. But there should be plenty of warning of that, probably no near time crisis: last time I checked, Nvidia production was sold out for a full year ahead of time. I have no doubt that their sales revenue will continue to increase. But earnings will depend on how long they can continue to command their stupendous c. 50% net profit margin (if this were an oil company, imagine the howls of “price gouging”).

As usual, nothing here should be considered advice to buy or sell any security.

Government Makes Quasi-Nationalization Deal to Assure Supply of Critical Rare Earths for Defense 

If top government officials were regular readers of this blog, they would have been warned by a headline here more than two years ago, “China To Squeeze West by Restricting Export of Essential Rare Earths “.  For the last few years, the U.S. has been trying to limit Chinese access to the most powerful computing chips, which are largely made by American company Nvidia. But China has some high cards to play in this game. It produces some 90% of refined rare earths and rare earth products like magnets.  These super-powerful neodymium-containing magnets are utterly critical components in all kinds of high-tech products, including wind turbine generators and electric motors for electric vehicles and drones, and miscellaneous military hardware.

It has been painfully obvious at least since 2010, when China put the squeeze on Japan by unofficially slowing rare earth exports to Japan over a territorial dispute, that it was only a matter of time before China played that card again. But the West slumbered on. There is a reasonable amount of rare earth ores that are mined outside China, but nobody wanted to build and operate the expensive and environmentally messy processes to refine the rare earth minerals (carbonates, oxides, phosphates) into the pure metals. Unlike the esoteric and hard-to-imitate processing for cutting edge computing chips, anyone can gear up and start refining rare earth ores. It mainly just takes money, lots and lots of it, to build and operate all the processing equipment for the multiple steps involved*. There was little free market incentive for a Western company to invest in expensive processing, since China could readily bankrupt them by cutting prices as soon as they started up their shiny new process line. Reportedly, the Chinese used this tactic twice before (in 2002 and 2012) to kill nascent refining of the rare earth ores at Mountain Pass mine in California.

As of April of this year, in response to ongoing U.S. export restrictions on chips, China threw its latest rare earth card down on the table, requiring export licenses and imposing other restrictions that throttled rare earth exports. Western manufacturers were soon howling in pain. As of early June:

Global automakers are sounding the alarm on an impending shortage of rare earth magnets as China’s restrictions on the material vital for the automotive, defence and clean energy industries threaten production delays around the world.

German automakers became the latest to warn that China’s export restrictions threaten to shut down production and rattle their local economies, following a similar complaint from an Indian EV maker last week. U.S., Japanese and South Korean automakers warned President Donald Trump on May 9 car factories could close.

The Trump administration quickly caved on chips and in July permitted boatloads of high-end H20 Nvidia chips to ship to China, in return for resumption of rare earth exports from China. Score one for the CCP. As of mid-August, rare earth shipments had climbed back to around half of their pre-May levels, but China ominously warned Western companies against trying to stockpile any reserves of rare earths, or they would “face shortages” in the future.

After this ignominious face-slapping, the administration finally did something that should have been done years ago: they gave an American company a solid financial incentive to buckle down and do the dirty work of refining rare earth ores at large scale. The Defense Department inked a deal with MP Materials Corp, the current operator of the Mountain Pass mine and the modest refining operation there to quickly ramp up production:

The Department of Defense is investing capital in MP across several fronts. This includes a $400 million convertible preferred equity, struck at a fixed conversion price of $30.03. The government gets 10-year MP stock warrants also set for a $30.03 price. As planned, this would get the Department of Defense to about a 15% ownership position in MP Materials. In addition, the Department of Defense will lend MP Materials $150 million at a highly competitive interest rate to help the company expand its heavy rare earth element separation capabilities.

It’s not just a financing deal, however. This arrangement also provides a striking level of influence over pricing and profitability for MP Materials going forward.

For one thing, the Department of Defense will provide a price floor of $110 per kilogram for NdPr. NdPr is a product that is a combination of neodymium and praseodymium. This is a generous floor price…

The Department of Defense’s involvement now gives MP Materials the runway necessary to build what’s being dubbed the 10X magnet manufacturing expansion plant. The Department of Defense is committed to buying the output of this plant with a controlled cost-plus pricing structure. And there will be a profit split with the DoD getting a significant chunk of the upside above certain EBITDA thresholds.

This is being billed as a private-public partnership, but it is akin to nationalization. The government will be heavily involved in planning output and setting pricing here, as well as sharing in profits.  Fans of laissez-faire free markets may be understandably queasy over this arrangement, but national security considerations seem to make this necessary.

I predict that further “private-public” deals will be struck to subsidize Western production of vital materials. Let’s be clear: massive subsidies or similar incentives, in one form or another, will be needed. And this means that Americans will have to devote more resources to grinding out industrial materials, and less to consumer goods; hence, we will likely live in smaller houses, perhaps (gasp) lacking granite countertops and recessed lighting. Economics is all about trade-offs.

Due to its vast, lower-paid, hard-working and highly-capable workforce, the whole Chinese supply chain and production costs run far, far cheaper than anything in the West. We don’t have to produce 100% of what we use, even say 40% might be enough to keep from being helplessly squeezed by another nation. How to do this without descending into unproductive rent-seeking rip-offs will be a challenge.

Some other materials candidates:  China has as of December 2024 completely shut off exports to the U.S. of three key non-rare earth technical elements, gallium, germanium and antimony, so those might be a good place to start. China mines or refines between half and 90% of global supply of those minerals. Also, China has instituted export regulations of for more key metals (tungsten, tellurium, bismuth, indium and molybdenum-related products), so these may be further subjects for squeeze plays. Finally, “China is the world’s top graphite producer and exporter, and also refines more than 90% of the world’s graphite into a material that is used in virtually all EV batteries,” so that is yet another vital material where the West must decide how much it is worth to break its dependence on an unreliable trading partner.

A Modern-Day Pirate Seeks to Recover Up to Ten Billion Dollars of Gold from Republic Shipwreck Off Nantucket

Arrrr, me hearties! What think ye of a venture to raise a gigantic hoard of sunken treasure?

The story begins with the last voyage of RMS Republic. This was a luxurious passenger steamship of the White Star Line, which sailed between Europe and America.

Wikipedia

Republic was a large vessel (15,000 tons displacement) for her day, and was known as the “Millionaires’ Ship” for the number of wealthy Americans who sailed back and forth on her. A number of such magnates were aboard on her last voyage. In January, 1909 Republic left New York City with  passengers and crew, bound for Gibraltar and Mediterranean ports. In thick fog off the island of Nantucket, Republic was rammed amidships by the Italian liner Florida. Florida’s bow was crumpled back, but she stayed afloat. The damage to Republic was fatal. The engine rooms flooded, the ship began to list, and it was clear that the passengers needed to be evacuated.

Using the new-fangled Marconi “wireless” apparatus, a CQD distress signal was broadcast by radio operator Jack Binns. This was the first wireless transmission that resulted in a major life-saving marine rescue. (Binns had to scramble and improvise to get this done, since his apparatus had been damaged and the ship’s power was lost as a result of the collision, so he was a technology nerd turned hero, duly lauded by a ticker-tape parade). It was hard for other ships to locate Republic in the fog, but eventually nearly all the passengers and crew from Republic and from the damaged Florida were safely transferred to other ships.

As was the custom of the time, she did not carry enough lifeboats to hold all the passengers, but only enough to ferry them to some other ship; it was assumed that on the busy Atlantic route there would always be other large ships around.  (That scheme played out well with the Republic, but when sister White Star liner Titanic sank four years later, the dearth of lifeboats helped doom some 1,500 people to a watery grave.) Despite efforts to save her, Republic went down stern-first on January 24. She was the largest ship ever to sink at the time.  There were reports at the time that she was carrying some $3 million (1909 dollars) of gold, which went down with the ship. That would translate to hundreds of millions of dollars today for that gold.

But wait, there’s more, maybe much more. Enter a modern-day pirate, Martin Bayerle:

Vineyard Gazette

Bayerle looks like a pirate, sporting a genuine eyepatch covering an eye lost in an explosives accident. He killed a man who was fooling around with his wife, which seems like a piratical thing to do, and he is after a ship’s gold.   His salvage enterprise is even formally described in legal court papers as “modern day pirates”. 

His company, Martha’s Vineyard Scuba Headquarters, Inc. (“MVSHQ”), acquired salvage rights to the wreck of the Republic. In 2013 he published a book, The Tsar’s Treasure, detailing his thesis that Republic carried far more gold than was publicly acknowledged. He notes that there was no formal inquiry regarding the sinking of Republic, which was highly unusual and is suggestive of a cover-up. Cover-up of what?

Well, Europe at the time was a tinder box of potential conflict, which did in fact erupt five years later in World War I.  Czarist Russia was a key part of the European military equation. Britain was counting on Russia to help contain the emerging militaristic Germany. Russia had incurred huge debts in its disastrous war with Japan in 1905. Russia was about to issue a new round of bonds in 1909, to roll over its debt from 1905. It was critical that that bond issuance would go forward.


Bayerle believes that a large amount of gold was stashed in the hold of the Republic, destined for European banks, to support the Russian bonds of 1909. The revelation that that gold was lost would have jeopardized this crucial financial transaction, perhaps leading to Russia’s collapse, which is something Britain could not afford. Hence, the cover-up. Bayerle estimates that the value of this trove is up to $10 billion in today’s money. Shiver me timbers!

This geopolitical speculation, together with stories of failed previous salvage attempts on Republic, all make for a rollicking yarn. Is it for real? Nobody knows, but Bayerle is offering investors a chance at a slice of the booty. If you are inclined to “Dare to dream the impossible” (per the website), you have the opportunity to invest in his Lords of Treasure enterprise as they make a dive on the site this summer.


I don’t happen to have that much risk appetite, but it should be an interesting story to follow.

UPDATE

According to the June 2025 Lords of Fortune Newletter, salvage operations originally slated for 2025 are being put off till 2026, as funding is still being developed. We note the technical challenge of picking through hundreds of tons of steel plate and girders, deep underwater, in search of a smallish volume of gold. On the other hand, Capt. Bayerle’s recent researches suggest the gold trove may be even larger than earlier estimated, up to some $30 billion. So high risk meets high reward here. It seems ironic that VC’s will throw say $300 million into dubious tech unicorns or the latest crap-coin, but eschew a pretty sure bet of at least breaking even here (if only the lowest estimates of the Republic gold pan out) with a good shot at 10X-ing their investment. We will stay tuned.

Are Managed Futures Funds Worth Including In Your Portfolio?

Back in February, 2023 I wrote an enthusiastic plug for including managed futures funds in an investment portfolio. That was based on several observations. First, bonds have become often positively correlated with stocks, so the traditional 60/40 stock/bond portfolio provides less hedging or diversification than earlier. Second, during the long grinding bear market of Jan-Oct 2022, managed futures funds shot up, nicely hedging stocks. Third, I had only recently discovered managed futures, so they were for me a shiny new toy.

Managed futures funds hold both long and short positions in futures contracts for a variety of commodities (e.g., oil, gas, metals, cattle), stocks (e.g., domestic vs. international) and other financial instruments (domestic and foreign bonds, currencies, interest rates, etc.). Fund managers usually base their positioning on momentum or trend-following. Historical data shows that if a commodity moves up steadily for, say, a month, there is greater than 50% odds that it will continue moving up for some additional time.  If the fund’s positioning is correct, it makes money the next week or month. If it is incorrect, the fund loses money.

Historically, a good managed futures fund will trade fairly flat or slightly up during a stock bull phase, then step up to give positive return during a stock bear market, to counter the drop in equities prices. We can see below how that worked for managed future (MF) ETF KMLM around 2022. It rose slowly in 2021, then fell back at the end of the year. However, in Jan-Oct 2022 while stocks (and bonds) were painfully grinding down to a 22% loss, KMLM ripped higher by a huge 40%. That seems like a great hedge:

KMLM quickly gave back those gains, for reasons we will discuss. But if you had been consistently rebalancing your portfolio, you would have captured much of those gains.

This sort of performance is why some advisors recommend moving much of your non-stock holdings out of bonds and into managed futures. What’s not to like here?

It turns out that MF funds struggle if there are not fairly long, strong trends in commodity prices. If trends reverse quickly, and then reverse again, then the fund’s positions will lose money over and over. We can see this in the above plot. The story for most of 2022 was interest rates going up and up and up. MF funds were rock stars as they rode that trend for many months. But there was a surprising break in futures trends in November, 2022, as markets suddenly started pricing in an early Fed pivot towards easing in 2023, and so interest rates rose, and bonds and the U.S. dollar tumbled. All the managed futures funds took a sharp hit Nov-Dec 2022. KMLM then went roughly flat for 2023; other MF funds fared worse.

So far, so good. However, it seems like there has been a sea change in futures markets. Before around 2010 or so, there is reason to believe that much of the futures price action was driven by the underlying commodities themselves. For instance, cattle or soybean producers wanted to protect themselves against changes in cattle or soy prices, and so they would buy or sell futures to lock in prices say eight months out. In these situations, there would naturally and normally be months-long trends in futures prices. Wall Street took the other side of those trades. But now it seems to me (can’t give proof reference) that it’s speculators on both sides of the trades, leading to trade algos constantly trying to outguess each other and higher volatility.

For whatever reason, normal trend-following MF has been a bad business for the past 2 years. Here is a continuation of the chart above, showing mid Aug 2023- mid Aug 2025 for KMLM (orange line) compared to S&P 500 stocks (blue line):

The scale is not shown here, but KMLM lost some 30% of its value during that time period. That is NOT the kind of hedge you want to hold.

So, should we forget about MF funds? It turns out that not all MF funds perform the same. My informal research suggests that most MF funds have performed similar to KMLM in the past two years (=abysmally). Since my 2023 article, though, (a) an improved MF ETF (CTA) has appeared, and (b) I became aware of a superior MF fund (AQMNX) of the old-style (non-ETF) mutual fund format. Below is a 3-year chart of KMLM, SP500, and the ETF CTA and the mutual fund AQMNX:

We can see that both the new contenders are up instead of down in the past three years, and both were uncorrelated enough to SP500 to cushion the big Feb-April stock drawdown this year. They handily outperformed bonds (e.g. BND, not shown) during this time period.

There are fundamental reasons why those two funds would behave differently than plain vanilla trend-following KMLM. CTA adds a factor called carry (which I will not try to define) to its algo, and also takes large concentrated bets. AQMNX draws on the very sophisticated quantitative resources of the AQM fund family. It also takes long/short bets on equities (e.g. S&P 500 index), which are not in KMLM.  AQMNX is not available through all brokerages (it is at Fidelity).

As the months roll by and plain stocks soar effortlessly up and up, it may seem pointless to consider any portfolio hedges. But for those who value diversification, these two funds may merit consider consideration. (As usual, nothing here should be considered advice to buy or sell any security).

Bureau of Labor Statistics Under Siege

Thousands of keyboards were likely drenched four days ago as coffee spewed from thousands of nostrils upon reading the headlines that President Trump fired the head of the Bureau of Labor Statistics because he (the prez) didn’t like the July 2025 job numbers that were reported. Apparently, the job stats were not as great as we had been led to expect for the new regime of tariffs and deportations. (Someone should inform the politicians that businessmen need predictability for making any expansionary plans). So, shoot the messenger, that will fix it.

The First Ire was apparently kindled especially by the truly massive downward revisions to the May (-125,000) and June (-133,000) job figures, which reduced the combined employment gain for those months by 258,000. That made for three anemic employment months in a row, which is a different picture that had been earlier portrayed. For those unfamiliar with past BLS reports, that could seem like manipulation or gross incompetence. For instance, whitehouse.gov published an article titled, “BLS Has Lengthy History of Inaccuracies, Incompetence”, excoriating the “Biden-appointed”, now-fired Erika McEntarfer who “consistently published overly optimistic jobs numbers — only for those numbers to be quietly revised later.”

But massive overestimations of jobs creation, followed a month or two or three later by massive downward revisions are pretty standard procedure for the BLS in recent years. Fellow blogger Jeremy Horpedahl has noted prior occurrences of this, e.g. here and here. There is no reason to suspect nefarious motives, though. The understaffed and overworked folks at BLS seem to be doing the best they can. It is just a fact that some key data simply is not available as early as other data. There are also rational adjustments, e.g. seasonal trends, that must first be estimated, and only later get revised.

Bloomberg explains some of the fine points of the recent revisions:

The downward revision to the prior two months was largely a result of seasonal adjustment for state and local government education, BLS said in earlier comments to Bloomberg. Those sectors substantially boosted June employment only to be largely revised away a month later.

But economists say the revisions also point to a more concerning, underlying issue of low response rates.

BLS surveys firms in the payrolls survey over the course of three months, gaining a more complete picture as more businesses respond. But a smaller share of firms are responding to the first poll. Initial collection rates have repeatedly slid below 60% in recent months — down from the roughly 70% or more that was the norm before the pandemic.

In addition to the rolling revisions to payrolls that BLS does, there’s also a larger annual revision that comes out each February to benchmark the figures to a more accurate, but less timely data source. BLS puts out a preliminary estimate of what that revision will be a few months in advance, and last year [2024], that projection was the largest since 2009.

Perhaps it would be wise for the BLS to hang a big “preliminary” label on any of the earlier results they publish, to minimize the howls when the big revisions hit later. Or perhaps some improvements could be made in pre-adjusting the adjustments, since revisions there do seem to swing things around outrageously. I expect forthcoming BLS reports to be the subject of derision from all sides. We all know which parties will scoff if the job report looks great or if it looks not great. Presumably the interim head of the Bureau, William Wiatrowski, is busy polishing his resume.

And POTUS should be careful what he wishes for – “great” job growth numbers would, ironically, strengthen the case for the Fed to delay the interest rate cuts he so desires.

Warren Buffett Quotes on Gold as a Bad Investment; Was He Right?

To say Warren Buffett is not a fan of gold would be an understatement. His basic beef is that gold does not produce much of practical value.  His instincts have always been to buy businesses that generate steady and growing cash by producing goods or services that people need or want –  – businesses like railroads, beverage makers, and insurance companies.

Here are some quotes on the subject from the Oracle of Omaha, where I have bolded some phrases:

“Gold … has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end” — Buffett, letter to shareholders, 2011

“With an asset like gold, for example, you know, basically gold is a way of going long on fear, and it’s been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in the year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money. But the gold itself doesn’t produce anything” — Buffett, CNBC’s Squawk Box, 2011

This from when the world’s 67-cubic foot total gold hoard was worth about $7 trillion, which by his reckoning was the value of all U.S. farmland plus seven times the value of petroleum giant ExxonMobil plus an extra $1 trillion:

“And if you offered me the choice of looking at some 67-foot cube of gold … and the alternative to that was to have all the farmland of the country, everything, cotton, corn, soybeans, seven ExxonMobils. Just think of that. Add $1 trillion of walking around money. I, you know, maybe call me crazy but I’ll take the farmland and the ExxonMobils”  – – Cited in https://www.nasdaq.com/articles/3-things-warren-buffett-has-said-about-gold

And my favorite:

Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head“. – – From speech at Harvard, see https://quoteinvestigator.com/2013/05/25/bury-gold/

One thing Buffett did NOT say is that gold is “barbarous relic”.  That line is owned by John Maynard Keynes from a hundred years ago, referring to the notion of tying national money issuance to the number of bars of gold held in the national vaults:

“In truth, the gold standard is already a barbarous relic. All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices, and employment, and are not likely, when the choice is forced on us, deliberately to sacrifice these to outworn dogma, which had its value once” –  Monetary Reform (1924)

Has Buffett’s Berkshire Hathaway Beaten Gold as an Investment?

 Given all that trash talk from the legendary investor, let’s see how an investment in his flagship Berkshire Hathaway company (stock symbol BRK.B) compares to gold over various time periods. I will use the ETF GLD as a proxy for gold, and will include the S&P 500 index as a proxy for the general U.S.  large cap stock market.

As always, these comparisons depend on your starting and ending points. In the 1990s and 2000s, BRK.B hugely outperformed the S&P 500, cementing Buffett’s reputation as one of the greatest investors of all time. (GLD data doesn’t go back that far).  In the past twelve months, gold (up 41%) has soundly beaten SPY (up 14 %) and completely trounced BRK.A (up 9%), as of last week. A couple of one-off factors have gone into these results: Gold had an enormous surge in January-April as the world markets digested the implications of never-ending gigantic U.S. budget deficits, and the markets soured on BRK.A due to the announced upcoming retirement of Buffett himself.

Stepping back to look over the past ten years shows the old master still coming out on top. In this plot, gold is orange, S&P 500 is blue, and BRK.A is royal purple:

Over most of this time period (through 7/21/2025), BRK.A and SP500 were pretty close, and gold lagged significantly. Gold was notably left behind during the key stock surge of 2021. Even with the rise in gold and dip in BRK.A this year, Buffett’s company (up 232%) still beats gold (198%) over the past ten years. BRK.A pulled well ahead of SP500 during the 2022 correction, and never gave back that lead. In the April stock market panic this year, BRK.A actually went up as everything else dropped, as it was seen as a tariff-proof safe haven. SP500 was ahead of gold for nearly all this period, until the crash in stocks and the surge in gold in the first half of 2025 brought them to essentially a tie for the past decade.

Meta AI Chief Yann LeCun Notes Limits of Large Language Models and Path Towards Artificial General Intelligence

We noted last week Meta’s successful efforts to hire away the best of the best AI scientists from other companies, by offering them insane (like $300 million) pay packages. Here we summarize and excerpt an excellent article in Newsweek by Gabriel Snyder who interviewed Meta’s chief AI scientist, Yann LeCun. LeCun discusses some inherent limitations of today’s Large Language Models (LLMs) like ChatGPT. Their limitations stem from the fact that they are based mainly on language; it turns out that human language itself is a very constrained dataset.  Language is readily manipulated by LLMs, but language alone captures only a small subset of important human thinking:

Returning to the topic of the limitations of LLMs, LeCun explains, “An LLM produces one token after another. It goes through a fixed amount of computation to produce a token, and that’s clearly System 1—it’s reactive, right? There’s no reasoning,” a reference to Daniel Kahneman’s influential framework that distinguishes between the human brain’s fast, intuitive method of thinking (System 1) and the method of slower, more deliberative reasoning (System 2).

The limitations of this approach become clear when you consider what is known as Moravec’s paradox—the observation by computer scientist and roboticist Hans Moravec in the late 1980s that it is comparatively easier to teach AI systems higher-order skills like playing chess or passing standardized tests than seemingly basic human capabilities like perception and movement. The reason, Moravec proposed, is that the skills derived from how a human body navigates the world are the product of billions of years of evolution and are so highly developed that they can be automated by humans, while neocortical-based reasoning skills came much later and require much more conscious cognitive effort to master. However, the reverse is true of machines. Simply put, we design machines to assist us in areas where we lack ability, such as physical strength or calculation.

The strange paradox of LLMs is that they have mastered the higher-order skills of language without learning any of the foundational human abilities. “We have these language systems that can pass the bar exam, can solve equations, compute integrals, but where is our domestic robot?” LeCun asks. “Where is a robot that’s as good as a cat in the physical world? We don’t think the tasks that a cat can accomplish are smart, but in fact, they are.”

This gap exists because language, for all its complexity, operates in a relatively constrained domain compared to the messy, continuous real world. “Language, it turns out, is relatively simple because it has strong statistical properties,” LeCun says. It is a low-dimensionality, discrete space that is “basically a serialized version of our thoughts.”  

[Bolded emphases added]

Broad human thinking involves hierarchical models of reality, which get constantly refined by experience:

And, most strikingly, LeCun points out that humans are capable of processing vastly more data than even our most data-hungry advanced AI systems. “A big LLM of today is trained on roughly 10 to the 14th power bytes of training data. It would take any of us 400,000 years to read our way through it.” That sounds like a lot, but then he points out that humans are able to take in vastly larger amounts of visual data.

Consider a 4-year-old who has been awake for 16,000 hours, LeCun suggests. “The bandwidth of the optic nerve is about one megabyte per second, give or take. Multiply that by 16,000 hours, and that’s about 10 to the 14th power in four years instead of 400,000.” This gives rise to a critical inference: “That clearly tells you we’re never going to get to human-level intelligence by just training on text. It’s never going to happen,” LeCun concludes…

This ability to apply existing knowledge to novel situations represents a profound gap between today’s AI systems and human cognition. “A 17-year-old can learn to drive a car in about 20 hours of practice, even less, largely without causing any accidents,” LeCun muses. “And we have millions of hours of training data of people driving cars, but we still don’t have self-driving cars. So that means we’re missing something really, really big.”

Like Brooks, who emphasizes the importance of embodiment and interaction with the physical world, LeCun sees intelligence as deeply connected to our ability to model and predict physical reality—something current language models simply cannot do. This perspective resonates with David Eagleman’s description of how the brain constantly runs simulations based on its “world model,” comparing predictions against sensory input. 

For LeCun, the difference lies in our mental models—internal representations of how the world works that allow us to predict consequences and plan actions accordingly. Humans develop these models through observation and interaction with the physical world from infancy. A baby learns that unsupported objects fall (gravity) after about nine months; they gradually come to understand that objects continue to exist even when out of sight (object permanence). He observes that these models are arranged hierarchically, ranging from very low-level predictions about immediate physical interactions to high-level conceptual understandings that enable long-term planning.

[Emphases added]

(Side comment: As an amateur reader of modern philosophy, I cannot help noting that these observations about the importance of recognizing there is a real external world and adjusting one’s models to match that reality call into question the epistemological claim that “we each create our own reality”.)

Given all this, developing the next generation of artificial intelligence must, like human intelligence, embed layers of working models of the world:

So, rather than continuing down the path of scaling up language models, LeCun is pioneering an alternative approach of Joint Embedding Predictive Architecture (JEPA) that aims to create representations of the physical world based on visual input. “The idea that you can train a system to understand how the world works by training it to predict what’s going to happen in a video is a very old one,” LeCun notes. “I’ve been working on this in some form for at least 20 years.”

The fundamental insight behind JEPA is that prediction shouldn’t happen in the space of raw sensory inputs but rather in an abstract representational space. When humans predict what will happen next, we don’t mentally generate pixel-perfect images of the future—we think in terms of objects, their properties and how they might interact

This approach differs fundamentally from how language models operate. Instead of probabilistically predicting the next token in a sequence, these systems learn to represent the world at multiple levels of abstraction and to predict how their representations will evolve under different conditions.

And so, LeCun is strikingly pessimistic on the outlook for breakthroughs in the current LLM’s like ChatGPT. He believes LLMs will be largely obsolete within five years, except for narrower purposes, and so he tells upcoming AI scientists to not even bother with them:

His belief is so strong that, at a conference last year, he advised young developers, “Don’t work on LLMs. [These models are] in the hands of large companies, there’s nothing you can bring to the table. You should work on next-gen AI systems that lift the limitations of LLMs.”

This approach seems to be at variance with other firms, who continue to pour tens of billions of dollars into LLMs. Meta, however, seems focused on next-generation AI, and CEO Mark Zuckerberg is putting his money where his mouth is.