A Few Things...

April 16, 2021

“When you think about focusing, you think ‘Focusing is saying yes.’ No. Focusing is about saying no.”

- Steve Jobs

“The difference between successful people and really successful people is that really successful people say no to almost everything.”

- Warren Buffett

“The main thing is, to keep the main thing the main thing”

- Stephen Covey

A. A Few Things Worth Checking Out

1. Last week Peter Thiel joined former Secretary of State Mike Pompeo and former National Security Agency advisor Robert C. O’Brien in a virtual roundtable organised by the Richard Nixon Foundation, to discuss Big Tech’s problematic ties with China. 

This was a far reaching discussion, with the most oft-quoted bit in the media being about bitcoin being a Chinese weapon, but the whole conversation is a great and intense listen.

2. I’ve been spending more time in the crypto / blockchain world since January, and one of my virtual guides has been Chris Dixon at a16z. He has been at a16z since 2013 and in 2018 started their first dedicated cryptocurrency vehicle. He’s a prolific writer on his blog, I recommend this one: The next big thing will start out looking like a toy.

He was also on the Invest Like the Best podcast last week discussing: The Potential of Blockchain Technology.

3. Gradually, then suddenly: Bloomberg’s take on Bitcoin’s race to replace gold as the global digital-reserve asset is a good read.

4. My friend Ram Parameswaran, the founder and managing partner of investment firm Octahedron Capital was on the new Business Breakdowns podcast breaking down the world's largest e-commerce company, Alibaba.

Ram has invested in some of the biggest Chinese companies of the past decade, including Pinduoduo and Bytedance. He really helped me understand this country scale business much better which most of us in the West only know because of Jack Ma’s antics.

5. I recommend Adam Robinson’s conversation with Bill Brewster. Adam is very thoughtful, first principles thinker that I’ve learnt a bunch from and I’d recommend his conversations with Tim Ferriss/Josh Waitzkin (2016) and Shane Parrish (2018) as well.

My fav ideas were: how to stay calm under pressure and watching out for situations where you act “stupid”, looking for things that “don’t make sense” and double clicking on them for opportunity and when you make an investment asking “what do you need to see to change your mind?”.

6. Context on just how big the Archegos equity capital loss was vs other hedge fund / prop desk losses.

7. Ted Seides is the host of the well-known Capital Allocators podcast, and after doing many years of interviews with the best capital allocators in the world, he’s written a book discussing what he’s learnt from them. A lot of wisdom here.

He had a chat with Patrick O’Shaughnessy to discuss: Lessons from the World’s Elite Money Managers.

8. Enjoyed Brian Koppelman’s (writer of shows like Billions, Rounders and. Ocean’s Thirteen) conversation with Sadhguru.

"Doesn't matter what it is. Human longing for deepening their experience is such that even if they have to poke themselves with a pin, they will do that. They want something profound to happen to them. Otherwise who would go through all this nonsense about life? The reason why they go through this is: seeking profoundness of experience. When it comes to experiencing life, you want the most profound experience. It's all you have. You want something to happen to you. If nothing happens to you, that is a most tragic life."

9. This was a fun tweet storm:

B. When Fiscal and Monetary Policy Become One

The size of the fiscal spending plans which are coming from Washington look familiar if America were in a shooting war, à la WW2.

In a way, the pandemic has served the same purpose - large sums of money must be raised via bonds and taxes as FDR told the public during the 1940s, and there must be an all-out effort to win the war.

So it is in 2020-2021 America.

Last year’s $3 trillion fiscal spend was followed by the $1.9 trillion American rescue plan. Now, the $2.3 trillion American jobs plan is up for discussion.

This is a big bet on fiscal/monetary policy, the likes of which we have not seen in years.

This WSJ article by Greg IP, their economic correspondent caught by eye on how the economic orthodoxy is changing!

Take a minute to read it please.

This smells a lot like MMT - Modern Monetary Theory. For those that need a refresher, we discussed MMT and The Deficit Myth in January.

I think that in the Biden administration, there's probably a lot of bitterness in terms of how they missed their chance with Obama to do more around BIG government, I think that the sense that they tried to collaborate too much with the Republicans that by 2010, the Tea Party came in and shut the door.

And so, they need to do everything they can in the next 18 to 24 months.

Before we discuss the FED, I want you to consider the thought that maybe the stimulus isn’t really about the pandemic at all, it’s about social cohesion, and the Democrats finally have an opportunity to push on that.

This was a great chart I got from Marko Papic at Clocktower Group showing the historic decision that was was made in the 1970’s in France and in the 1980’s in the US that drove income and wealth distribution over the last four years.

This trend in the US has created massive social cohesion concerns, an issue we discussed in our post on the upcoming US Civil War in July last year.

I think politically then we are going to continue to see surprises to the upside on fiscal front.

Swinging to the FED and Monetary Policy.

To quote Marko Papic:

The academic thesis is that the Federal Reserve knows how to fight inflation and that it will therefore respond quickly to any signs that inflation is on the march. Investors may again be overly mechanical in their read of the Fed.

We think the odds of three rate hikes by 2023, as the market expects, are fantastically overstated. First, growth is likely to decelerate sharply by then, driven both by the gravitational pull of the potential GDP growth rate and eventual exhaustion of fiscal policy. Goldman Sachs expects real GDP growth to decelerate from 7.1% in 2021 to 5% in 2022 and 1.8% in 2023.

We are collectively supposed to believe that in 8-12 months, in the midst of the 2024 election season, with GDP growth collapsing to somewhere around potential, a Biden Fed appointee will respond with three rate hikes, despite the fact that the history of pre-election rate hikes is scant 

Last week, Federal Reserve President Robert Kaplan gave an interview to Bloomberg’s Kathleen Hayes where he laid out the FED’s plan in plain English. It’s worth listening to the whole thing, but the bottom line is that the FED is not raising rates for a very long time.

And for context, Robert Kaplan is one of the most hawkish members of the FED.

And for context though, the market is pricing in more than a full hike by the end of 2022, and out to 2023, there are almost four hikes priced in. While the FED is saying no hikes till 2024.

In that spirit, Kaplan has provided a valuable roadmap:

  1. The virus is the Fed’s most immediate concern. Nothing will happen until that risk is substantially taken off the table. Even though it feels like America has won the virus battle, the war is still raging throughout the rest of the world.

  2. When the withdrawal of stimulus occurs, the next step will be a tapering of asset purchases.

  3. The Fed is willing to look through some transitory inflation.

  4. Finally, the Fed will not be pre-emptive (which means they are going to be late).

The market has priced in too much tightening too quickly. The Fed is telling you that they aren’t going to go that quick, but few believe this.

Could the Fed be wrong and the economy end up being so strong they are forced to be “reactive?” Sure. But even if everything goes as well as the market believes, there is still a lot of tapering to do before the Fed even thinks about raising rates.

This continues to make me concerned about the USD, but bullish on risk assets.

“The most successful companies no longer control supply but rather demand; moreover, that shift is not due to the actions of any one company but rather to the fundamentally changed structure of the market.... This is the critical insight: it has always been obvious that owning all customers is preferable to owning all suppliers; before the Internet, though, that was impossible. There was too much friction. In other words, the implication of the Internet is the enablement of new models that actually make much more sense, yet were previously unviable because of said friction.”

- Ben Thompson

"We are in the habit of imagining our lives to be linear, a long march from birth to death in which we mass our powers, only to surrender them again, all the while slowly losing our youthful beauty. This is a brutal untruth. Life meanders like a path through the woods. We have seasons when we flourish and seasons when the leaves fall from us, revealing our bare bones. Given time, they grow again."

- Author Katherine May on the seasons of life