A Few Things: Higher For Longer, Four Thousand Weeks, Manufacturing Intelligence
April 2 2022
I am sharing this weekly email with you because I count you in the group of people I learn from and enjoy being around.
“We must let go of the life we have planned, so as to accept the one that is waiting for us.”
- Joseph Campbell
“Care about what other people think and you will always be their prisoner."
- Lao Tzu
“Be the change you want to see in the world.”
If you missed last week’s email, it’s here.
A. Is The Recent Spike In Inflation Transitory?
Inflation has real implications for the state of the world and people, rather than just financial and “numbers on a screen”.
In the disinflationary environment we have enjoyed over the past couple of decades, markets have valued at much lower multiples the things we need (e.g. oil, gas, commodities) while prioritising and ratcheting up the valuations on the things that are “nice to have” (e.g. technology, social media etc).
Reading recent work from my boss at Goldman Sachs, Alan Brazil, now writing at SOM Strategies.
He had great work on three factors that will push inflation higher for longer.
Factor 1: Era of cheap labor from China And Eastern Europe of the last 20 years is over. Cheap labor and the products they produced had prevented price shocks, such as from oil, from creating an inflationary cycle.
Factor 2: Energy, food, goods, and housing inflations is likely headed higher as structural demand growth will continue to outstrip supply. This is where de-globalisation, decarbonisation and continued low energy capex come in.
Factor 3: Inflationary cycle could me worse than the 70s if the historical high levels of stimulus driven cash/wealth growth turns into consumption. This is where the combination of demographics and the “Great Resignation” are probably not in our favour.
Zoltan Pozsar, at Credit Suisse had a new piece titled: Money, Commodities, and Bretton Woods III.
In it, he lays out an uncomfortable set of parallels between the drivers of the nominal monetary system and the real economy: where there are nominal drivers of the cost of money like parity, interest, foreign exchange and price levels, so too does the REAL economy, in the form of commodity prices, foreign cargo, shipping and protection.
We’ve been so used to the Fed having our back these past years, with many starting to believe that “money printer go brrr” can solve basically every problem in the world.
Zoltan has very bad news: moving from the domain of money supply, repos and liquidity to the real domain of mines and oil fields, shipping, leasing, transport and security, we very quickly find out that we can only print money to solve problems in the domain of the nominal. We cannot print oil, wheat, corn or copper. When these physical markets get “gummed up”, to use his words, there is little if anything central banks can do to unblock these bottlenecks.
If you want to go deeper on this, Viktor Shvets from Macquarie Capital was on the Bloomberg Odd Lots podcast discussing why we might be heading for a deflationary bust given central banks are at risk of raising rates too quickly and flipping the world into recession.
No amount of money printing will solve the problem, no amount of central bank guarantees or swap lines will unblock a ship stuck in the Suez Canal.
On the flipside, central banks are now faced with high inflation numbers that are testing their mettle. Tightening liquidity into a gummed up real domain is equally bad news, because while printing more money doesn’t really help, taking liquidity out of markets for leasing (of tankers, freighters) and credit (for shipments in transit of commodities) in a world of greater risk of freight security (from piracy, tariffs etc) unequivocally makes things worse.
A lack of understanding of supply chains for basic commodities (just as there was a lack of understanding of the plumbing in the banking system in 2008), not to mention the just-in-time, highly capital efficient (read “no redundancies”) system we’ve built over the past decades, lulls many into a false sense of assuming that big disruptions will be brushed off easily. For example, “Europe doesn’t want Russian oil? Easy, just sell to China, Europe can buy from Saudi.” is something WAY easier said than done, with WAY bigger implications on real lives around the world.
Daniel Yergin, one of the foremost experts on the energy markets, and author of The Prize and The New Map was on the NYT Ezra Klein podcast discussing: How Energy Markets are Shaping Putin’s Invasion - and the World.
B. Four Thousand Weeks
An average human only gets about 4,000 weeks of life on Earth (4,000 / 52 = 77).
There are probably 3-4 books over the last ten years that have really slapped me around and changed how I looked at my life.
Four Thousand Weeks by Oliver Burkeman is one of them, and regular readers have seen me refer to it last September.
I re-read it again this week as a reminder to myself.
There are a few big ideas in this book:
The Efficiency Culture:
We live in efficiency culture, where it’s about doing more and more things. But as we rush to tick things off our to-do list, we are actually doing each thing in a very cursory way. Each task becomes small, irrelevant and something we are just trying to get done to move to the next thing.
None of the actual tasks matter. Only the next task matters. So if nothing that you are really doing matters then does your life really matter?
You Get The Life You Choose:
To give our life meaning, we must choose what stuff will mean to us. We have to choose what we will sacrifice our life for. No choices mean more tedious things will find their way into your life.
Make the choices of what you will do and what you will not do. Commit to what matters to you. And agree to miss out on certain things. Use time rather than let time use you.
His thesis is that we run from tasks to tasks because we don’t actually want to decide what we want to do with our life.
He has a great story about writing down a list of 25 things you want to do with your life. It’s possible many of you have done this exercise. Warren Buffett has talked about it as punch card investing.
Oliver’s thesis is that when you select the top 5 things you are going to do with your life, the problem to watch out for is the other 20, because they are what will take you away from the top 5. The top 20 are dangerous to you achieving the top 5.
All Life is Borrowed Time:
Being busy with stuff is a way to forget our finitude. We don’t have to choose if we don’t ever take a time to think about it. But to live a good life we must choose.
Be in the moment.
All life is borrowed time.
We are always preparing, thinking about the future. It’s always about what’s next, what’s in the future. It’s never about being here today. There is no perfect tomorrow. So be here. Today is all that really exists. The rest is just in your head.
“To rest for the sake of rest—to enjoy a lazy hour for its own sake—entails first accepting the fact that this is it: that your days aren’t progressing toward a future state of perfectly invulnerable happiness, and that to approach them with such an assumption is systematically to drain our four thousand weeks of their value. ‘We are the sum of all the moments of our lives,’ writes Thomas Wolfe, ‘all that is ours is in them: we cannot escape it or conceal it.’ If we’re going to show up for, and thus find some enjoyment in, our brief time on the planet, we had better show up for it now.”
—Oliver Burkeman (“Four Thousand Weeks”)
C. The Tech and Crypto Section:
1. Great Web3 Breakdown with Matt Ballensweig, co-head of trading and lending at Genesis. This is a discussion of the plumbing inside crypto including how market makers & prime brokers work, where the yield in crypto come from, where systemic risk in crypto could come from and what he’s excited about building.
Have you done any staking or liquidity farming in crypto?
2. Nvidia, the premier AI chip company held its GTC conference on March 22nd.
Jensen Huang, CEO gave a keynote about “intelligence manufacturing”: the idea of AI creating AI via machine learning. This got me thinking about Westworld…..
The first two minute fly through in the keynote is amazing!
He also had an interview with Stratechery, key bit below:
Intelligence is the ability to recognize patterns, recognize relationships, reason about it and make a prediction or plan an action. That’s what intelligence is. It has nothing to do with general intelligence, intelligence is just solving problems. We now have the ability to write software, we now have the ability to partner with computers to write software, that can solve many types of intelligence, make many types of predictions at scales and at levels that no humans can.
For example, we know that there are a trillion things on the Internet and the number things on the Internet is large and expanding incredibly fast, and yet we have this little tiny personal computer called a phone, how do we possibly figure out of the trillion things in the internet what we want to see on our little tiny phone? Well, there needs to be a filter in between, what people call the personalized internet, but basically an AI, a recommender system. A recommender that figures out based on the nature of the content, the characteristics of the content, the features of the content, based on your implicit and your explicit and implicit preferences, find a way through all of that to predict what you would like to see. I mean, that’s a miracle! That’s really quite a miracle to be able to do that at scale for everything from movies and books and music and news and videos and you name it, products and things like that. To be able to predict what Ben would want to see, predict what you would want to click on, predict what is useful to you. I’m talking about things that are consumer oriented stuff, but in the future it’ll be predict what is the best financial strategy for you, predict what is the best medical therapy for you, predict what is the best health regimen for you, what’s the best vacation plan for you. All of these things are going to be possible with AI.
Guilty pleasure this weekend: