The Curious Mind: Tepper on Markets, The Changing Economic & Investment Landscape, Ted Seides on Investment Paradigms, Life Advice, Personalised AI, Intelligent Machines, Investing in Healthcare....
October 2, 2024
I am sharing this weekly email with you because I count you in the group of people I learn from and enjoy being around.
If you missed last week’s discussion: Men Are Being Left Behind, The Opportunity in EM, Michael Ovitz on Media, How Networks Really Work, The Future of Medicine, Co-Intelligence, AI Predictions, Charts You Missed...
A lot going on in markets, so a bunch of that to start us off.
This email takes many hours to put together, including hours of sourcing, curating and writing. If it is helpful to you, then do me a favor and hit the “heart” button so I know it’s useful to you.
Quotes I Am Thinking About:
"There are all kinds of cheat codes lying around, but they usually look boring. People will routinely ignore things that already work for the hope of a slightly easier path. The cheat code is the work you're avoiding."
- James Clear
“Your job, throughout your entire life, is to disappoint as many people as it takes to avoid disappointing yourself.”
- Glennon Doyle
“Do I contradict myself? Very well then I contradict myself, (I am large, I contain multitudes.)”
- Walt Whitman
“The best people possess a feeling for beauty, the courage to take risks, the discipline to tell the truth, the capacity for sacrifice. Ironically, their virtues make them vulnerable; they are often wounded, sometimes destroyed.”
- Ernest Hemingway
A. A Few Things Worth Checking Out:
1. Great 25 mins with David Tepper on China and Markets (from 25mins in to 53mins).
Great investor’s perspective on the FED, China and politics.
2. Hidden Forces spoke to James Aitken, a financial markets veteran and advisor to many of the world’s most powerful, sophisticated, and successful investors.
They discuss the Fed’s recent rate and why he believes this is a profound shift in monetary policy that investors need to understand and incorporate into their investment frameworks going forward.
They then review the set of interlocking macroeconomic, political, and geopolitical challenges facing investors. These include (1) the economic and national security policy changes underway in China, (2) the fiscal pictures in the U.S. and Europe, (3) and what a Trump 2.0 administration could mean for markets and the economy.
They also discuss the case for commodities, the implications of a multi-decade reversal in monetary policy by the Bank of Japan, how the Fed’s pre-emptive rate cuts might reignite inflation, and what all this means for the value of the dollar, commodities, and the role that Gold could and should play in people’s portfolios going forward.
It’s a great discussion of intricate interplay between monetary policy, fiscal dynamics, geopolitics, and market behavior.
The 5 BIG IDEAS:
Federal Reserve's Paradigm Shift and its Implications: Potential reignition of inflation and challenges if inflation rebounds while committed to supporting employment. This shift is occurring in an environment of continued economic resilience and high nominal GDP growth, challenging traditional recession narratives. The Fed's actions have significant implications for emerging markets, carry trades, and global capital flows.
The Paradox of US Treasury Market Resilience: Despite significant fiscal concerns, the bond market exhibits surprising stability. 10-year Treasury yields remain lower than fiscal fundamentals might suggest. Bonds are effectively saying they "don't care" about fiscal imbalances for now. The resilience provides the government with continued fiscal space. But there is potential for a repricing if economic strength persists or inflation reignites.
Gold's Evolving Market Dynamics: Gold is experiencing a structural shift in its market behavior. Decreasing price fluctuations are changing gold's risk profile, alongside steady buying from central banks and sovereign wealth funds, especially in emerging markets. Lower volatility is attracting more capital flows, potentially changing gold's role in portfolios.
European Defense Spending as a Structural Economic Shift: A sustained increase in European defense expenditures represents a major economic trend, which is likely to persist regardless of US election outcomes or short-term geopolitical developments. Long-term benefits for defense sector stocks and supply chains. Potential for impact similar to post-WWII Marshall Plan in terms of economic transformation.
China's Economic Strategy and Global Ramifications: Commitment to making the economy "fit for purpose," even at the cost of near-term growth. Economic strategy intertwined with broader national security and technological competition goals.
3. Eric Peters is the Founder, CEO, and CIO of One River Asset Management. He recently sold the Digital Assets part of his firm to Coinbase, becoming the CIO of Coinbase asset management, and still serves as the CIO at One River.
One River sees the world in a period of major economic and political transition, with the investment landscape shifting in ways that will make the coming ten years look profoundly different from the past decade.
He spoke with Erik Townsend on MacroVoices.
The 4 BIG IDEAS:
Evolution of Currency Dynamics: The US dollar is likely to maintain its reserve currency status, but through new technological means. Private sector stablecoins, rather than CBDCs or cryptocurrencies like Bitcoin, are expected to play a crucial role. The adoption of dollar-based stablecoins could extend US dollar dominance globally.
US Fiscal Policy and Strategic Inflation: The US is deliberately running high deficits (around 7% of GDP) and accepting higher inflation as a policy choice. This strategy aims to address economic challenges, fund domestic investments, and manage debt burdens. Inflation is viewed as a tool for economic management rather than a problem.
Energy Markets and US Competitive Advantage: The US has gained a significant advantage in energy production compared to Europe and China. Growing demand for electricity, particularly driven by AI development, is creating new market dynamics. This energy advantage contributes to US economic dynamism and global competitiveness. Significant infrastructure investment and development in the energy sector is anticipated. The reopening of nuclear reactors (e.g., Three Mile Island) indicates the intensity of electricity demand
Market Uncertainty and Future Economic Scenarios: High level of market uncertainty, particularly regarding the impact of AI on productivity. Potential for a significant dollar decline exists, especially if concerns about US debt sustainability grow. A scenario of US economic stagnation coupled with high deficits could lead to a major shift away from the dollar. Such a scenario could result in significant appreciation of precious metals and digital assets. The current market optimism might be justified by future AI-driven productivity gains or could be setting up for a major market top.
4. Investment Industry Paradigms: Ted Seides is the host of the Capital Allocators podcast and an investment industry expert, he was speaking to Patrick on Invest Like The Best, discussing the evolution of the LP and GP relationship, the scale of institutional investing, and the nuance of asset allocation.
The 4 BIG IDEAS:
The Evolving Landscape of Institutional Investing: The institutional investing world is vastly larger and more complex than commonly perceived. There's a shift towards more precise risk measurement and asset allocation models (e.g., the "total portfolio approach"). Governance structures significantly impact an institution's ability to innovate and adapt
The Transformation and Challenges of Private Equity: Private equity has grown to a multi-trillion dollar industry, becoming a significant part of the global economy. Current challenges include a bottleneck in exits, potential price resets due to interest rate changes, and the end of certain tailwinds (e.g., multiple expansion)
The Widening Gap Between LPs and GPs: LPs and GPs often misunderstand each other's perspectives, constraints, and motivations. There's tension between LPs' desire for focused, high-performing managers and the reality of asset concentration in large, multi-strategy firms. The question of aligning incentives and fee structures remains a point of contention. LPs are increasingly concerned about the wealth accumulation in the GP community
The Concentration of Talent and Capital in Asset Management: There's a pronounced trend towards concentration of assets and talent in large, multi-strategy firms. Platforms like Citadel and Millennium are reshaping the hedge fund landscape by attracting top talent. Smaller firms are being forced to find specialized niches to compete
5. This is the Way. Regular readers know that I am infinitely interested in the question of how to live a good life. This article is one of the best life advice piece I've ever read. It's written as a letter from father to daughter, and it's the length of a short book.
The author does a fantastic job of distilling valuable lessons down to their essence and conveying them through personal stories.
B. The Science and Technology Section:
1. Have you tried Google’s NotebookLM?
It’s a great step towards Personalized AI. It trains on any real time data you share with it, but with Google's security infrastructure, and the best part is that it can ingest any number of reports, materials you feed into it, into your own podcast format.
Check it out, it is cool.
2. What Is The Future of Intelligent Machines.
Ray Ozzie is the CEO & Founder of Blues Wireless. Ray is perhaps best known as the creator of Lotus Notes, a collaboration tool that revolutionized business communication in the 1990s. He later succeeded Bill Gates as Chief Software Architect at Microsoft, where he played a key part in the development of Azure, Microsoft's cloud computing platform.
He spoke to Patrick at Invest Like The Best.
The 4 BIG IDEAS:
The ubiquity of intelligent cyber-physical systems: He envisions a future where intelligent, connected devices permeate every aspect of our physical world. This goes beyond traditional IoT, encompassing what Ozzie calls "intelligent cyber-physical systems." These systems blend hardware, software, and cloud services to create data-driven, adaptive products across industries. From refrigerators and cranes to batteries and even porta-potties, Ozzie foresees a world where every physical product has embedded intelligence and connectivity, fundamentally changing how we interact with and derive value from our environment.
The convergence and synergy of multiple technological paradigms: The current era is marked by the simultaneous advancement and integration of multiple technological domains: AI/ML, semiconductor technology, wireless communications, cloud computing, and more. He highlights how these technologies are not just progressing in parallel, but are synergistically building upon each other. This convergence is creating a compounding effect, driving unprecedented opportunities for innovation and problem-solving.
The transformation of business models through data-driven services and direct customer relationships: He predicts a fundamental shift in how businesses operate and deliver value. Physical products are evolving from standalone "boxes" to nodes in intelligent, connected systems. This transformation allows manufacturers to build direct relationships with end customers, even in multi-tier distribution models. Ozzie sees this as a paradigm shift similar to the move from boxed software to cloud services, impacting industries far beyond traditional tech sectors.
The critical importance of systems thinking and interdisciplinary expertise: As technologies become increasingly interconnected and complex, he emphasises the growing importance of systems thinking and interdisciplinary knowledge. The most valuable professionals will be those who can bridge multiple domains, understanding everything from chip-level design to cloud services, and how they interact in complex systems.
3. Healthcare is full of innovation and RTW Investments is one of firm’s that is near the top of the heap investing in it. The Business Breakdowns team spoke to Rod Wong (founder and CIO) and Stephanie Sirota (the chief business officer).
They covered the various phases of drug investments, the unique dynamics of founders and team building, and the more philosophical discussions around regulation in the industry.
It’s a great overview of the interplay between scientific innovation, capital markets, and the broader healthcare ecosystem.
The 4 BIG IDEAS:
Unique Biotech Industry Structure and Product Lifecycle: Three-phase lifecycle leads to lengthy development (10+ years), strong revenue, rapid decline. High capital intensity ($1 billion+ per drug) with low success rates (single-digit %). Fragmented industry with many small biotechs and larger pharma companies.
Innovation Boom and Evolving Treatment Modalities: Surge in new modalities (gene therapy, RNA, cell therapy, etc.) driving record drug approvals. Shift from traditional small molecules to more complex biologics and targeted therapies.
Regulatory Environment and Healthcare System Dynamics: Impact of IRA on drug development incentives, particularly in areas like oncology. Misalignment of incentives across healthcare stakeholders (insurers, hospitals, drug companies, patients). Ongoing debate over drug pricing and value communication
Long-term Industry Challenges and Opportunities: Ongoing need for management talent and operational expertise in scaling biotech companies. Potential for biotech innovations to significantly impact life expectancy and quality of life. Broader economic and societal implications of breakthrough treatments (e.g., impacts on healthcare costs, productivity, and related industries).
4. Morgan Stanley had great report on a bunch of themes, here are 3 slides to set the stage:
5. Two fascinating conversations about technology investing across public and private markets: Thomas Laffont of Coatue at All-In Summit and Bill Gurley & Brad Grestner on the BG2 pod.
The 5 BIG IDEAS across the two conversations:
The Venture Capital Paradox: Despite a flush funding environment, the VC industry faces a liquidity crisis. With IPOs at historic lows and a swollen "unicorn economy," the industry is cash-flow negative. This raises existential questions about VC's value proposition and sustainability.
The Private Market Conundrum: Extended private periods for startups are a double-edged sword. While allowing for growth away from public scrutiny, they risk "overfeeding" companies, fostering poor discipline, and misaligning incentives. The debate rages: Is staying private too long killing the golden goose?
Public Markets as the Great Disinfectant: There's a growing call for embracing public markets as a force for company health. The shift from growth-at-all-costs to the "profitability, growth, and scale" trifecta is reshaping tech valuations. Can Silicon Valley adapt its cultural aversion to public market pressures?
AI - The New Gold Rush: AI isn't just another tech trend; it's a potential paradigm shift. But with its unprecedented capital requirements and technical challenges, are we seeing the birth of a new tech aristocracy or setting ourselves up for a spectacular bubble?
The Future of Innovation Financing: As traditional VC returns are challenged by public market indices, the industry faces a crossroads. Can it evolve to meet changing market conditions, shorter company lifecycles, and societal pressures while still fostering groundbreaking innovation? The answer may redefine the relationship between private capital and technological progress.
C. The Curious Mind Event Series
One of the areas AI will have the most impact on ahead is Robotics.
And due to robots, AI is moving from virtual to physical, or becoming embodied.
A new report from Citi estimates 1.4 billion AI-robots could be here by 2035.
The report discusses the technological advances making this possible, use cases, potential units by use case and challenges to make this happen.
The latter includes the impact on the Future of Work from robots and humanoids.
We will be hosting a closed virtual session with the author Robert Garlick, Head of Innovation, Technology and Future of Work Research at Citi, on October 21 12pm EST.
Would you like to join?
P.S. Could you do me a favor ? This email takes many hours to put together, including hours of sourcing, curating and writing. If it is helpful to you, then do me a favor and hit the “heart” button so I know it’s useful to you.
A goldmine of insight across markets, tech, and life lessons—all in one place. From navigating the Fed's paradigm shifts to the intricacies of biotech investment, this is the kind of weekly roundup that keeps your mental toolkit sharp. The quotes alone are a masterclass in perspective. Worth every minute to read, reflect, and hit that “heart” button.