First off, apologies for my illogical title. These two black swans get little attention precisely because they are real black swans – low probability risks with gigantic consequences.

Black Swan #1

Hackers seriously disrupt the U.S. GOVERNMENT

Iran’s response to Soleiman’s killing is coming, writes Sam Dagher in The Atlantic. “Over time, the United States, Israel, and their allies—and all those perceived as harming Iran’s regional strategy—will face retribution, though, most likely in the form of covert operations and actions that will be much harder to trace back to Tehran.”

I reluctantly concur. Any retaliation will happen through proxy militias, Iran’s favored strategy for decades. But what form will retaliation take? Dagher quotes Soleimani from an October 2019 television interview: “Soleimani hinted that if he [and his top lieutenants] were to die, an entire generation had been groomed by them to continue the fight—in asymmetric warfare, he warned, there are no traditional fronts. “The enemy,” Soleimani said, “must contend with an expansive and smart field of land mines.”

A smart field of landmines. Now that’s an intriguing phrase. What does the word “smart” mean, in this context? Well, it could mean just that – literal landmines triggered remotely by smartphones. It could be a metaphor for roving assassination squads and suicide bombers triggered by social media or encrypted communications. Or … the “smart field of landmines” could be another kind of metaphor, with no literal landmines at all.

In other words, cyber attacks.

“The use of AI-enabled cyber-weapons as a precursor to – or perhaps in place of – a military conflict poses catastrophic risks,” writes entrepreneur and C3.ai founder, Tom Siebel, in his book, Digital Transformation. Siebel elaborates:

Consider the U.S. power grid. The electricity grid is the engine that powers all mechanisms of commerce and civilization in the U.S. Should this engine fail, all dependent activities immediately cease to function, including water and sanitation, the food supply chain, financial institutions, healthcare, media, transportation and law enforcement.

The U.S. power grid is brittle, fragile, and highly susceptible to destructive cyberattack by terrorists, rogue states and foreign enemies. And they know it. The U.S. power grid is subject to incessant attacks employing phishing and spear-phishing, identity theft, denial of service attacks, and a spectrum of viral injection techniques delivering and embedding clandestine malware, bots and worms that, if and when enabled, have the capability of disabling critical portions of the power system if not the entire grid itself.

If and when that happens, the world as we know it, the world as we know it comes to an end.

black Swan #2

China seizes Taiwan to TSMC

China vows to be independent from U.S. and western technology by 2025. Can it get there? On many tech fronts, China is already world-class. Whether stolen from the U.S. or developed internally, China’s excellence in artificial intelligence, 5G, smart phones and smart phone apps are undeniable. Satellite communication, hacking and other forms of militarized tech are in the realm of speculation. But no one seriously doubts China’s capabilities in these areas.

There is, however, one critical exception to China’s tech prowess. China, in 2020, and likely for the next three to five years at least, is not world-class at manufacturing chips. (See here, here, and here to learn more.) Now, China can steal IP, but it’s much harder to steal a 3-nanometer fab plant that will cost $20 billion to build. Of the world’s companies that are world-class – including Intel and Samsung – none are in China. Perhaps the best of the bunch is Taiwan Semiconductor Manufacturing Company, or TSMC as it is known.

Pat Gelsinger, the CEO of American software company VMware, thinks TSMC has surpassed Intel in its chip fab capability. Gelsinger might know. He was Intel’s chief architect of Intel’s fabled 486 microprocessor line in the 1980s and 1990s. Gelsinger shared his opinion on TSMC when I interviewed him on January 7th– an interview I’ll be publishing in Forbes Asia magazine and Forbes.com in the coming days.

Eric Ross, an analyst at Cascend Securities, agrees. Ahead of TSMC’s Jan. 16th quarterly report – which Ross calls bullish – Ross emailed this analysis of TSMC:

We expect TSMC will have substantially bullish commentary for their Jan 16th quarterly results

o   TSMC (TSM) just announced record revenues in December 2019

o   We believe they’ve just reached 80% yields on their 5nm production for Apple’s A14 Bionic processor, meaning they can now start to rap actual volumes

o Orders for CY20 continue to expand, especially for advanced technologies

o 7nm capacity is fully booked (AMD sopped it all up)

o 5G takes off – the first infrastructure and 2H20 smartphones

o   Supposedly TSMC has reached 80% yields for their 5nm trials on Apple’s A14 Bionic processor as of a few weeks ago – if true, they are ready to ramp

o   First major customer at 5nm is expected to be Apple’s A14 Bionic processor for four new 5G phones in September 2020

o 5nm EUV lithography uses methods instead of pattern matching

o TSMC is moving forward on 3nm

o   Expected CY22, although we’ve also heard CY23

o   Breaking ground on a new facility for 3nm in Tainan (Taiwan) on 30 hectares next to its 5nm fab

o it is Expected that it will cost $ 19,5 b

Taiwan’s absorption into the PRC has always been the trophy sought by President Xi. Taiwan’s anti-PRC election outcome last week may have dimmed this idea for the moment. But China will always be lurking and waiting for an opportunity. The thought of grabbing TSMC before the 2025 declaration of Chinese technology independence might be irresistible. And that black swan, should it appear, would surely throw geopolitics and markets into turmoil.

First off, apologies for my illogical title. These two black swans get little attention precisely because they are real black swans – low probability risks with gigantic consequences.

Black Swan #1

Hackers seriously disrupt the U.S. GOVERNMENT

Iran’s response to Soleiman’s killing is coming, writes Sam Dagher in The Atlantic. “Over time, the United States, Israel, and their allies—and all those perceived as harming Iran’s regional strategy—will face retribution, though, most likely in the form of covert operations and actions that will be much harder to trace back to Tehran.”

I reluctantly concur. Any retaliation will happen through proxy militias, Iran’s favored strategy for decades. But what form will retaliation take? Dagher quotes Soleimani from an October 2019 television interview: “Soleimani hinted that if he [and his top lieutenants] were to die, an entire generation had been groomed by them to continue the fight—in asymmetric warfare, he warned, there are no traditional fronts. “The enemy,” Soleimani said, “must contend with an expansive and smart field of land mines.”

A smart field of landmines. Now that’s an intriguing phrase. What does the word “smart” mean, in this context? Well, it could mean just that – literal landmines triggered remotely by smartphones. It could be a metaphor for roving assassination squads and suicide bombers triggered by social media or encrypted communications. Or … the “smart field of landmines” could be another kind of metaphor, with no literal landmines at all.

In other words, cyber attacks.

“The use of AI-enabled cyber-weapons as a precursor to – or perhaps in place of – a military conflict poses catastrophic risks,” writes entrepreneur and C3.ai founder, Tom Siebel, in his book, Digital Transformation. Siebel elaborates:

Consider the U.S. power grid. The electricity grid is the engine that powers all mechanisms of commerce and civilization in the U.S. Should this engine fail, all dependent activities immediately cease to function, including water and sanitation, the food supply chain, financial institutions, healthcare, media, transportation and law enforcement.

The U.S. power grid is brittle, fragile, and highly susceptible to destructive cyberattack by terrorists, rogue states and foreign enemies. And they know it. The U.S. power grid is subject to incessant attacks employing phishing and spear-phishing, identity theft, denial of service attacks, and a spectrum of viral injection techniques delivering and embedding clandestine malware, bots and worms that, if and when enabled, have the capability of disabling critical portions of the power system if not the entire grid itself.

If and when that happens, the world as we know it, the world as we know it comes to an end.

black Swan #2

China seizes Taiwan to TSMC

China vows to be independent from U.S. and western technology by 2025. Can it get there? On many tech fronts, China is already world-class. Whether stolen from the U.S. or developed internally, China’s excellence in artificial intelligence, 5G, smart phones and smart phone apps are undeniable. Satellite communication, hacking and other forms of militarized tech are in the realm of speculation. But no one seriously doubts China’s capabilities in these areas.

There is, however, one critical exception to China’s tech prowess. China, in 2020, and likely for the next three to five years at least, is not world-class at manufacturing chips. (See here, here, and here to learn more.) Now, China can steal IP, but it’s much harder to steal a 3-nanometer fab plant that will cost $20 billion to build. Of the world’s companies that are world-class – including Intel and Samsung – none are in China. Perhaps the best of the bunch is Taiwan Semiconductor Manufacturing Company, or TSMC as it is known.

Pat Gelsinger, the CEO of American software company VMware, thinks TSMC has surpassed Intel in its chip fab capability. Gelsinger might know. He was Intel’s chief architect of Intel’s fabled 486 microprocessor line in the 1980s and 1990s. Gelsinger shared his opinion on TSMC when I interviewed him on January 7th– an interview I’ll be publishing in Forbes Asia magazine and Forbes.com in the coming days.

Eric Ross, an analyst at Cascend Securities, agrees. Ahead of TSMC’s Jan. 16th quarterly report – which Ross calls bullish – Ross emailed this analysis of TSMC:

We expect TSMC will have substantially bullish commentary for their Jan 16th quarterly results

o   TSMC (TSM) just announced record revenues in December 2019

o   We believe they’ve just reached 80% yields on their 5nm production for Apple’s A14 Bionic processor, meaning they can now start to rap actual volumes

o Orders for CY20 continue to expand, especially for advanced technologies

o 7nm capacity is fully booked (AMD sopped it all up)

o 5G takes off – the first infrastructure and 2H20 smartphones

o   Supposedly TSMC has reached 80% yields for their 5nm trials on Apple’s A14 Bionic processor as of a few weeks ago – if true, they are ready to ramp

o   First major customer at 5nm is expected to be Apple’s A14 Bionic processor for four new 5G phones in September 2020

o 5nm EUV lithography uses methods instead of pattern matching

o TSMC is moving forward on 3nm

o Expected CY22, although we also heard CY23

o   Breaking ground on a new facility for 3nm in Tainan (Taiwan) on 30 hectares next to its 5nm fab

o it is Expected that it will cost $ 19,5 b

Taiwan’s absorption into the PRC has always been the trophy sought by President Xi. Taiwan’s anti-PRC election outcome last week may have dimmed this idea for the moment. But China will always be lurking and waiting for an opportunity. The thought of grabbing TSMC before the 2025 declaration of Chinese technology independence might be irresistible. And that black swan, should it appear, would surely throw geopolitics and markets into turmoil.