A Few Things: Papic on China, Housel on Life Changing Ideas, How To Build Great Networks, Cezanne, Andor, WEIRD People, Roubini's Megathreats, Stratechry on AI and Doomberg on FTX/SBF.....

December 10 2022

Dec 10, 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.

If you missed last week’s edition, you can check it out here: 5% Inflation For a Decade, A US Bubble?, Good Inside, SBF, ChatGPT, Generative AI.....

“Obstacles cannot crush me. Every obstacle yields to stern resolve. He who is fixed to a star does not change his mind.”

- Leonardo da Vinci

“We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side.”

- Charlie Munger

"The goal of life is to die young - as late as possible!"

- Anthropologist Ashley Montagu on aging well

A. A Few Things Worth Checking Out:

1. China stocks could be the best global performers over the next six months, says Clocktower's Marko Papic.

Definitely not consensus.

2. Ideas That Changed My Life by Morgan Housel is a great quick read, and starts with: “You spend years trying to learn new stuff but then look back and realize that maybe like 10 big ideas truly changed how you think and drive most of what you believe.”

This was my favourite:

Sustainable sources of competitive advantage. This might be the most important topic in business and investing because other than luck it is the only path to long-term success. The only truly sustainable sources of competitive advantage I know of are:
Learn faster than your competition.
Empathize with customers more than your competition.
Communicate more effectively than your competition.
Be willing to fail more than your competition.
Wait longer than your competition.
Everything else – intelligence, design, insight – gets smashed to pieces by competitors who are almost certainly as smart as you.

3. I love Neckar's writing, and he had a 2nd conversation with Alix Pasquet (we covered the first one on Learnings for Analysts and Future Portfolio Managers.

This time they covered “Great Investors Build Networks and Never Stop Learning”.

00:00 Networking 09:36 Triads 15:57 How to meet important people 34:37 Mentoring 38:09 Personality types and investing 45:25 Power pairs 52:56 Tension and learning 59:17 Futsal 1:02:26 Battle-tested methods 1:04:40 Regime change and the 1970s 1:10:11 Adapting to regime change 1:17:16 Study creativity, writing, subtext

4. This had me smiling and crying at the same time.

Tansu YEĞEN @TansuYegen

This is why we should always show up for our kids🤍 TT/mamacrow https://t.co/q2L83nviav

5. If you are in London, definitely go check out the Cezanne exhibit at Tate Modern. It’s open till early March. They have brought together hundred’s of his works showing the journey that Cezanne took.

Thank you Victorie for recommending.

6. Andor on Disney Plus is THE BEST Star Wars series ever. Andor takes place five years before the events of the Battle of Yavin (when Luke Skywalker blew up the Death Star and began the Empire’s inevitable collapse) when the Rebellion is just starting to form.

It’s beautifully filmed. It’s a creation of Tony Gilroy the man behind the Bourne Trilogy.

B. WEIRD People

I first head about Joseph Henrich’s “The Weirdest People In The World: How the West Became Psychologically Peculiar and Particularly Prosperous” from Balaji Srinivasan on the Tim Ferriss podcast.

It’s somewhere between Hariri’s Sapiens and Diamond’s Guns, Germs and Steel.

Joe Henrich is Professor of Human Evolutionary Biology at Harvard University. Humans like to think that we're sovereign individuals with agency over our preferences and actions. But we are also a part of our social environment and Joe has teased apart some fascinating trends which explain how our location and culture have huge impacts on the way we behave, our preferences on everything from dating to work and family life to religion.

Henrich coined the term WEIRD to discuss: Western, Educated, Industrialised, Rich and Democratic. Most of you reading this are WEIRD but 6-7 bn of the planet’s population is not. I was not born WEIRD, but have become so in the last 20 years.

The book discusses what make WEIRD people special and how they came to be.

The big ideas I got from the ~500 page book:

Our culture changes our behaviour and hence our hormones / biology.
One of the triggers in societal change was the Protestant Church encouraging a direct relationship to God rather than an intermediary (sola scriptura). This led to growth in literacy rates as the Church encouraged the population to learn how to read the Bible and develop their own relationship to God. This also led to universal, state funded schooling.
One key characteristic of WEIRD vs non-WEIRD people is identity. WEIRD people identify themselves by their key attributes while non-WEIRD people define themselves by their relationships.
Ask a WEIRD person to describe themselves and they will probably say: Intelligent, funny, enjoy reading, good runner….While a non-WEIRD person who say something like: Father of Jane, son of Peter, born in Miami…Here’s a fuller list of the key elements of Weird psychology:
Guilt vs Shame is another difference between WEIRD and non-WEIRD thinking. WEIRD societies have limited shame. WEIRD people spend little time thinking of other people’s opinions of your actions and how they judge you, and spend far more time feeling guilty for how they might have failed themselves or some standard they set. While a non-WEIRD person is far more focused on societal shame.
An impact from the Church was a change in kin/ clan based relationships where each clan might have had a craft or skill, and first or second cousin marriages or polygamy to a world of nuclear families. This created the opportunity for families to be far more mobile and diverse by craft or skills. In fact, they found that the longer a population was exposed to the Western Church, the weaker it’s families and WEIRDer its psychological patterns are today.
The breakdown of kin-based institutions opened the door to urbanisation and the formation of free cities and charter towns, which began developing greater self-governance. Today we find that there is a huge difference between a tight norms versus a loose norms society. There is more innovation in the loose norms society, since without the burden of close kins, there is more openness to trying new things.

While religion has gone out of favour today in the West, in the past religious groups offered a trifecta: (a) interdependent networks that provide mutual aid, (b) shared commitments to scared norms, (c) rituals and supernatural beliefs that help manage existential anxiety and uncertainty.

I left the book better understanding just how different a WEIRD person’s view of the world is to non-WEIRD and why we may have a hard time understanding each others perspective.

He was on the Modern Wisdom podcast discussing: Evolution, Psychology, Monogamy and Culture.

Here’s a review of the book from the Atlantic that does a good job of summarising the main ideas.

C. Megathreats

Nouriel Roubini has written another book: Megathreats. It discusses the ten trends that imperil our future, and how to survive them.

Thanks to David Giampaolo and Tania Rotherwick I saw him at his presentation to Pi Capital this week, and have borrowed liberally from Tania’s notes below:

Roubini's assessment of the current situation:

Geopolitical: (similar to Papic’s multi-polar world and Zeihan’s end of the current order): We are in a period of geopolitical depression which will further divide the world, punctuated by four revisionist regimes - China, Russia, North Korea, Iran - that have rejected the liberal economic, monetary, geopolitical order that the West architected after WW2. The risk of war between great powers is rising and even if it remains a Cold War, this leads to increasing deglobalization, protectionism and re-shoring

Climate Change: Is creating a biodiversity crisis, destroying ecosystems and leading to an increase in zoonotic diseases and pandemic incidence; the melting permafrost in the northern hemisphere is release vast quantities of methane(>10x worse than CO2) and the additional concern or long frozen, potentially dangerous, bacteria and viruses coming back to life.

Technology: We are in the midst of an AI revolution and, while there are some positive economic benefits, we must not forget the the risk of permanent technological unemployment, not just for blue collar workers, but increasingly for both white collar and creative professions. Technology innovation of this sort is capital intensive and labour saving which means only the top 10% will benefit, increasing inequality.

Economic: Stagflation is taking hold (the worst example being the UK where the situation had been exacerbated by the self inflicted wound of Brexit). Growth is declining, production costs are increasing, total debt/GDP ratios in the advanced western countries are 4x the level of the 1970s (420% of GDP) severely reducing the ability of central banks to increase interest rates to tame inflation.

In the last two chapters he outlines two possible scenarios, the first a dystopian future when the ten threats conspire and collide to produce a truly terrifying future, the second where social and community cohesion are restored and new forms of global cooperation are found to deal with these threats and, although unlikely, would ensure a more peaceful and prosperous future.

Despite all the negativity, I think it’s a book that hopes for a positive future by being clear about the current threats. My personal view on these megathreats is that humans adapt, we change, we survive. I worry about some of these threats, and prepare for some of them.

You can watch a 20-min presentation he recently gave to dive deeper:

Related to thinking about current threats, Niall Ferguson spoke to Ayreh Bourkoff on the KindredCast podcast discussing: Recognizing The Patterns In Our Historical Moment.

Niall opines on the state of international and domestic affairs, as well as what makes for great leadership. Covering everything from Churchill’s greatest quotes to the unique heroism of Volodymyr Zelensky, the duo provides historical context to current events.

D. The Tech and Crypto Section

1. Great piece by Ben at Stratechry titled: AI Homework, on what AI and specifically ChatGPT mean for our children and education.

Key bit, emphasis mine:

In other words, the role of the human in terms of AI is not to be the interrogator, but rather the editor.
Zero Trust Homework: Here’s an example of what homework might look like under this new paradigm. Imagine that a school acquires an AI software suite that students are expected to use for their answers about Hobbes or anything else; every answer that is generated is recorded so that teachers can instantly ascertain that students didn’t use a different system. Moreover, instead of futilely demanding that students write essays themselves, teachers insist on AI. Here’s the thing, though: the system will frequently give the wrong answers (and not just on accident — wrong answers will be often pushed out on purpose); the real skill in the homework assignment will be in verifying the answers the system churns out — learning how to be a verifier and an editor, instead of a regurgitator.
What is compelling about this new skillset is that it isn’t simply a capability that will be increasingly important in an AI-dominated world: it’s a skillset that is incredibly valuable today. After all, it is not as if the Internet is, as long as the content is generated by humans and not AI, “right”; indeed, one analogy for ChatGPT’s output is that sort of poster we are all familiar with who asserts things authoritatively regardless of whether or not they are true. Verifying and editing is an essential skillset right now for every individual.

2. The Story Arc of SBF, FTX & Alameda | Ben Hunt & Doomberg. Ben Hunt of Epsilon Theory & Doomberg discuss the ties between SBFs exchange FTX and trading firm Alameda Research. They look into the use of the FTT token and how SBF was able to raise venture capital money at unrealistic valuations. Was SBF negligent in this situation, or did he intentionally commit fraud?

3. One of the first big crypto funds to go down (June 2022) was Three Arrows Capital (3AC). At risk of adding more to the state of crypto disillusionment, Kyle Davies, founder of 3AC was on Hugh Hendry’s Acid Capitalist podcast.

Hugh Hendry is one of the sharpest interviewers within the financial space, and while he has been absolutely civil in this interview (compared to others where he’s obliterated his interviewee), perhaps most impressive is how he has managed to draw out and underscore how cavalier Davies truly is about their behaviour and losses.

Thank you Yaser for flagging.

Here’s a quick overview of what 3AC did:

Mira Christanto @asiahodl

Su-Kyle saying they’re arb traders in a black-swan event, hunted by FTX, is the same as SBF saying there was a bank run. Lest we forget, here’s a recap of what 3AC did 👇🏼

Have a great weekend.

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