A Few Things: Kiril Sokoloff on What's Next, Marko Papic on Markets, Vivek Ramaswamy with Tucker Carlson, Follow The Money, Impact of GLP-1 on Investments, AI Power Paradox....

August 20, 2023

Hi, I’m Ahmed Husain, founder of A Few Things. Every week, I share my view on developments across markets, technology and being a better human. I advise and work with global family offices and investors looking to understand the world and find investment opportunities.

You can check out last week’s edition here: Galloway on the Future, Saudi and Sports, Hyper Individualisation, 4K Weeks on Peter Attita, Kuppy on Markets & Inflation, Meta's Chatbots, Future of Manufacturing, News You Missed....

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Hope you had a great weekend!

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Quotes I Am Thinking About:

“A wealth of information creates a poverty of attention.”

- Herbert Simon

“It is cowardice that makes you conceal the truth...Be bold, and there will be no need for subterfuge.”

- Sai Baba

“Honor is a harder master than the law.”

- Mark Twain

“Why do we not hear the truth? Because we do not speak it.”

- Publilius Syrus

“All of our miseries are nothing but attachment.”

- Osho

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A. A Few Things Worth Checking Out:

1. One of my favourite weekly reads is What I Learnt This Week by 13D Research, run by Kiril Sokoloff. It’s read by folks like Stanley Druckenmiller and Howard Marks.

Kiril has been in the game for decades, knows how to identify inflection points and is connected to the best mind.

Worth watching this interview he gave in July discussing the power of AI and its effect on humankind, the economic landscape in the U.S. and across the globe, his opinion on new world order, climate change and clean energy, the strength of the U.S. dollar and what that means for the nation’s economy.

2. Marko Papic at Clocktower Group shared his monthly, key idea:

Politics are becoming complicated. Donald Trump 2.0 is back and in a big way. Not only has he crushed all his GOP rivals at a level not before seen by any challenger to the presidency, but he is actually polling much better against President Biden than he did four years ago. As the Chart of the Month below shows, Trump is extremely competitive. With or without a recession. In our humble view, a recession will guarantee a Trump presidency. Do the twelve members of the FOMC want that outcome on their conscience?  We don’t think so. As such, investors should prepare to have a Fed that is behind the curve going forward.

3. Speaking about elections…you are going to be hearing more about Vivek Ramaswamy. I’ve never voted in any election, but this is someone I can get behind.

Please don’t send me hate mail.

4. If you love investing and want to improve your craft and be a better analyst, there is no better teacher than Dan McMurtrie at Tyro Capital in this podcast.

I discover new sources of alpha every time I listen to it.

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B. Follow The Money

Both the UK and US are running ever larger Fiscal Deficits - in the range of 5-6% of GDP and expanding. A government's fiscal (or budget) deficit is the difference between its spending and income from taxes and other revenues.

Governments are increasingly spending more than what they are taking in and this is before spending on healthcare, climate change and an aging society really kick in. We are all handing over 40-50% of our incomes to the government every year.

Where is the money going and why?

The Institute for Fiscal Studies (IFS) is the UK’s leading independent economics research institute, helping policy makers understand the impact that policy decisions have on individuals, households and businesses. It is an independent charity almost entirely dependent on securing research grants for its funding.

Follow the Money is an excellent book written by Paul Johnson, the current director of the IFS. The book provides an explanation of where the money comes from, where it goes to, how that has changed over time and how it needs to change in the future.

The book is a forensic examination of the £1 trillion it now costs to run the United Kingdom’s economy and is an essential guide to where your tax money goes.

Some things I took away:

On the tax front, Paul points out that the combination of low growth, higher debt interest and a large aging population means that tax as a % of GDP will rise from the stable historical levels of 32-24% over his lifetime to more than 37% in the next few years.

On the public services front, two stats:

• 40% of public service spending is now on health, up from 20% in 2000. This has only been possible thanks to defence spending falling form 10% of GDP to 2% over the last 23 years as health has increased from 3% to 8% over the same period.

• Education spending has not risen as a % of GDP in the last 50 years, while health has risen by 2.5x. Spending per pupil has flatlined since 2010 and further education has been cut much harder than schools and higher education. The result is a disastrously large number of 20 & 30 somethings who are functionally illiterate and innumerate for the workforce.

Three initial solutions:

• UK needs to re-establish a reputation for stability and confidence to encourage the scale of private sector investment essential to deliver a return to robust economic growth in the medium term.

• As the most centralised country in the western world, planning, decision making and taxing powers need to be devolved to the regions and local government, recognising the different regional realities in the UK, ie that Scotland is relatively rich, Wales and N. Ireland are very poor.

• Tax reform across the board would make a huge difference, as would stable corporate tax rates and a long term commitment to full expensing of capital investment.

You can hear Paul discuss his work and the book at his recent LSE event.

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C. The Impact of GLP-1 Drugs on the Investment Landscape

The CDC estimates that nearly 42% of the U.S. population is obese.

What if a class of drugs could reduce obesity and related diseases. All while increasing health spans and life spans. How much would you pay to reduce the risk of cancer and heart disease, how much would your employer or the government pay?

This is just one of the question at the heart of the GLP-1 drugs (you may know them as Wegovy, Ozempic, Semaglutide….)

As investors, we will face a number of other questions:

• Do these drugs work?

• Which companies will benefit from trends, besides the ones producing the drugs? Which companies and industries will suffer?

• Are those industries at risk right now and, if not, when?

Let me with the basics, what is a GLP-1 Drug and how does it work?

GLP-1 (Glucagon-like peptide-1) is a peptide released by the intestine that helps regulate insulin release and glucose absorption in response to meals. Peptides are small molecules that transmit information between different parts of the body. GLP-1 binds to specific receptors in pancreatic cells, triggering insulin secretion, which is crucial for managing blood sugar levels.

Peptides have a limited lifespan and disappear naturally over time. The time it takes for a peptide to decrease by half is called its "half-life." GLP-1's short half-life inspired the development of drugs called GLP-1 receptor agonists, which mimic its effects but with a longer duration.

GLP-1 also affects the brain, where it can increase signals that promote satiety and decrease those that stimulate hunger. These drugs aim to cross the blood-brain barrier to enhance their impact on appetite regulation. GLP-1 receptor agonists can lead to nausea, likely due to their effects on neurons related to vomiting control.

Additionally, GLP-1 impacts neurons receiving signals from the gut (Vagal neurons), promoting normal digestion by signaling increased gastric pressure. This mechanism might explain gastrointestinal side effects like diarrhea associated with GLP-1 receptor agonists.

There are 5 FDA approved drugs for weight loss, currently: orlistat, phentermine-topiramate, naltrexone-bupropion, liraglutide, and semaglutide. A sixth, tirzepatide, is expected to be approved soon.

Currently, Saxenda (Liraglutide - NVO) and Wegovy (Semaglutide - NVO) are the two GLP-1 drugs approved for weight loss by the FDA.

As an experiment, I tried Wegovy for 2 months starting June. It works impressively well!

The next set of questions are who are the winners and the losers, what industries are impacted, for example Dating Sites, Clothing Retailers, Fast Food….

The most thorough analysis I have seen is by Citrini’s Research: Upgrading from Overweight: The Effects of GLP-1 Drugs on the Investment Landscape.

The author James van Geelen of Citrinitas Capital was on the Bloomberg Odd Lots show this week discussing How the New Weight Loss Drugs Could Change Everything

I think this theme will be bigger than AI!

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D. The Technology Section:

1. Thoughtful Foreign Affairs piece titled The AI Power Paradox: Can States Learn to Govern Artificial Intelligence—Before It’s Too Late? by Ian Bremmer and Mustafa Suleyman.

Ian Bremmer is the President and Founder of Eurasia Group and GZERO Media. Mustafa Suleyman is CEO and Co-Founder of Inflection AI. A co-founder of DeepMind.

Let me give you the broad strokes, since it’s a long one. It first sets the stage and introduces the main ideas behind the AI Power Paradox:

• Dystopian Future: By 2035, artificial intelligence (AI) pervades various aspects of life, from hospitals to airlines, leading to unprecedented productivity and innovations. Despite these advancements, the world becomes more unpredictable due to threats like cyberterrorism and widespread unemployment among white-collar workers.

• Tech Companies vs Nation States: AI's rise challenges the traditional power held by nation-states, shifting it towards "technopolar" entities, mainly technology companies. As these tech companies become more powerful, they operate almost sovereignly in their digital realms. The rapid advancement of AI tech makes it challenging for governments to establish relevant and timely regulations.

• The need for global governance: Recognizing AI's challenges, global policymakers are trying to establish governance structures. A new, tailored governance framework is needed. Three distinct governance regimes are proposed: one for risk assessment, one to prevent AI arms races, and one to manage its disruptive forces.

It dives into what makes AI unique at this moment:

• Speed of Progress: The growth rate of AI, especially in terms of the parameters of language models, is astonishing. Advanced models that used to take weeks to train can now be done in seconds.

• Increasing Accessibility and Efficiency: Open-source versions of expensive models become available quickly. AI algorithms are easier to share, copy, or steal than physical assets, leading to potential proliferation risks.

• Global and Dual Use of AI: AI models, once developed, can proliferate worldwide. AI can be utilised for both civilian and military applications, blurring the lines between safe civilian uses and potential militaristic threats.

• Potential Dangers: AI could spread misinformation, erode trust, surveil and control populations, and even lead to physical threats. It might result in job losses, increase inequalities, amplify biases, and lead to military escalations.

• Challenges to Traditional Governance: AI is unlike any previous technology. It's not comparable to vehicles, chemical weapons, or nuclear arms. Traditional governance models are ill-equipped to handle AI due to its unique blend of benefits and risks.

It discusses the geopolitical and societal ramifications of the proliferation of AI.

• AI as a Power Tool: AI is reshaping the global power landscape, offering advantages that every country, corporation, and individual will want a piece of. It's more than just software—it's a new means of exerting influence and authority.

  

• Geopolitical Power Imbalances and AI Supremacy Race: While a few affluent and powerful entities will determine AI development, many countries, especially in the global South, risk being left behind. Both China and the United States perceive AI competition as a zero-sum game.

  

• Regulation Challenges and Authority Shift: AI is evolving at a speed that outpaces traditional policymaking. AI's trajectory will be primarily shaped by a few private businesses, sidelining policymakers. This shift places the power to influence global dynamics in the hands of technologists, presenting an unparalleled regulatory challenge for governments worldwide.

It then dives into governance challenges of AI and potential solutions and finishes with the way forward on AI Governance Regimes, including three distinct AI governance structures:

• A scientific risk-assessment group,

• A “Geopolitical Stability Board”,

• Bridge the gap between governments and the tech industry.

2. The race for supremacy in AI hinges on vast amounts of data. Many AI firms, after freely accessing internet data, are now looking for new sources. AI models need large datasets for training and significant processing power to detect patterns. With a shortage of specialized AI chips, firms are more focused on acquiring data.

With the rising demand for data, access challenges have emerged. Content creators are seeking compensation for their work, resulting in copyright disputes. AI companies, therefore, are making deals to secure legitimate data access. Reddit and Stack Overflow, for instance, have raised their data access costs.

One untapped data goldmine is within tech firms' corporate clients, which have extensive records like customer transactions. However, this information is scattered and not easily accessible. Companies like Amazon, Microsoft, and Google now offer tools to manage this unstructured data. The business of data organization is booming, evident in the investments and valuations of startups like Weaviate, PineCone, and Neon.

This Economist article goes into detail: AI is setting off a great scramble for data.

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Believe it or not, that “♡ Like” button is a big deal – it serves as a proxy to new visitors of this publication’s value. If you enjoyed this, don’t be shy.