A Few Things: Where Are Markets Headed, Golden Age For Workers, Finding Fraud, The Future of China, Google's Gemini Model, Why The Internet Will Get Weirder, News and Charts You Missed...
December 8, 2023
I am sharing this weekly email with you because I count you in the group of people I learn from and enjoy being around.
Here is last week’s discussion: Marko on Markets & Geopolitics, Morgan Housel's Big Questions, Nicolai Tangen on Decision Making, Future of Weight Loss, NYT Deal Book Summit, Is A.I. Coming For You, Munger's Wisdom...
To prepare you for your Christmas Parties…
Quotes I Am Thinking About:
“Efficiency is doing things right; effectiveness is doing the right things.”
- Peter Drucker
"People everywhere confuse what they read in newspapers with news.”
- A. J. Liebling
“One of the secrets of a long and fruitful life is to forgive everybody everything every night before you go to bed.”
- Bernard Baruch
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete."
- Buckminster Fuller
"Those who do not remember the past are condemned to repeat it."
- George Santayana
“The greatest good you can do for another is not just to share your riches but to reveal to him his own.”
- Benjamin Disraeli
“The true value of networking doesn't come from how many people we can meet, but rather how many people we can introduce to others."
- Simon Sinek
“Never give up on a dream just because of the time it will take to accomplish it. The time will pass anyway.”
“The only normal people are the ones you don't know very well.”
- Alfred Adler
“We all know what to do, we just don't know how to get re-elected after we've done it.”
- Jean Claude Juncker
A. A Few Things Worth Checking Out:
1. Marko Papic at Clocktower Group shared his Annual Forecast:
He posits that the US Election is the only geopolitical event that matters. The Ukraine war is in stasis – has been since September 2022 when we said it was a frozen conflict. The Israel-Hamas war is not macro relevant. And China-US tensions are ongoing, but Beijing has decided to sue for a temporary détente due to a slew of reasons that will likely keep this contest on the backburner in 2024. As such, the one geo-macro factor that will move markets in 2024 is the rising probability of former President Trump coming back to the White House in 2025.
“The Fed is very much part of America’s establishment elites. As such, it is going to lean towards leniency no matter what happens to the economy, assets, and data in 2024. The market has already begun to discount Jay Powell’s rhetoric and expect cuts. We agree, but would go even further. If the economy slows down in the first half of 2024, do not be surprised if the Fed cuts by more than the expected 125 bps… a lot more.”
While on the US presidential elections:
2. In the mid-2010s, the term “bullshit jobs” was coined by David Graeber to describe purposeless work, reflecting a challenging period for workers with high unemployment and weak wage growth in OECD countries. However, the situation for workers in the rich world has dramatically improved. As populations age and labor becomes scarce, manual work is increasingly valued and compensated, especially as it is hard to replace with technology. Government spending and economic policies are supporting higher wages, and AI is boosting productivity, particularly for less skilled workers, which could also lead to higher wages.
The change in labor dynamics is partly due to the shift in China's working-age population, which peaked in 2015. Previously, Western firms could leverage the threat of relocation or competition from Chinese firms to suppress wages. Now, with China's workforce declining and other poor countries struggling to build industrial capacity, coupled with geopolitical instability, outsourcing is less appealing. Labor shortages are prevalent across the rich world, leading businesses to hoard labor and governments to rely on immigration to fill gaps. Minimum wages in many OECD countries have been maintained or increased, and trillions are being spent on initiatives like the green transition to create jobs.
The policy environment is conducive to a "high-pressure economy," aiming for full potential with healthy employment and rising wages, especially for lower-paid workers. Labor markets are tight, leading to fast wage growth as workers switch jobs for better pay, benefiting poorer employees the most. In fields like construction and healthcare, there is a pressing need for technically skilled workers. AI is playing a role in enhancing productivity and job satisfaction in various sectors, including service work.
The impact of AI on labor markets is complex. It may lead to job displacement, but it also creates new tasks and demands in the economy. The skills complementing AI are likely to be in high demand, with a particular benefit for those with fewer qualifications who are already seeing wage increases.
As labor markets transform due to demographic changes, policy, and AI, different regions will experience unique impacts. In places with aging populations, worker shortages will drive wage increases and spur AI use. In America, AI's impact is less predictable, but the economy is expected to generate new jobs in response to the prosperity AI brings.
3. The Wizard of Lies: Bernie Madoff and the Death of Trust. I thought I knew a lot about fraud and Bernie Madoff, but after listening to this new podcast, Better Than B-School, I realised I knew very little.
Everyone knows who Bernie Madoff is. You probably have a couple talking points you repeat if he comes up in conversation, but I doubt you know the full story—the story that could save you millions.
The story goes all the way back to his first clients in 1962, and finishes with his sons handing him over to the authorities in 2008. As an investor you'll learn:
How people spotted Madoff years before his fall, and how you can spot frauds before falling victim.
Why you need to hire experts when conducting due diligence.
How you can use a tool called The Fraud Triangle to evaluate deals.
Why you can't rely exclusively on regulators to protect you from fraud.
How The Bystander Effect applies to investing.
4. "Is China Hitting Its Peak? Not So Fast!"
Gavekal had a thoughtful piece with that title. First off, what does 'Peak China' even mean? There are a few interpretations. Some think it's about China's economic growth stalling, while others see it as China reaching the limit of its global economic influence. And then there's the idea that China's GDP as a share of the US's GDP has maxed out, with no chance of overtaking the US. But here's the deal - the reality is likely more nuanced:
China's economic growth might slow down, but its per capita income is less than a fifth of the US's, and there's a history of countries (like Japan, South Korea, and Taiwan) maintaining solid growth after reaching China's current income level.
Another point to consider is China's massive industrial ecosystem. It's a global manufacturing powerhouse, contributing 30% to the world's manufacturing output. Plus, China's recent achievements, like becoming the world's biggest car exporter and leading in green energy, show that it's still a key player in the global economy.
As for whether China will surpass the US as the world's biggest economy, that's up for debate. The US-China economic rivalry is complex, and the dynamics are constantly evolving. The US has been actively working to maintain its lead, using strategies like tariff walls and export controls. But China's economic landscape is also shifting, and it's hard to predict exactly how things will pan out.
5. Meb Faber sat down with Louis-Vincent Gave and Harris “Kuppy” Kupperman to discuss various interesting topics: emerging markets, the impact of the energy transition on commodities like oil and uranium, stealth bull markets in Japan and India, Mag7, Argentina, Turkey, aviation sub-assembly stocks, geopolitical consequences of trade restrictions, market sentiment, uranium market factors and challenges, overlooked potential in the aviation industry, and criticism of Calpers.
6. I discovered Derek Sivers a few years ago and I remember diving into his website, his books and podcasts. Over the years I’ve learnt a ton from him and he’s a unique dude and deep thinker.
Over the years, he has been a musician, circus performer, computer programmer, author, public speaker, and entrepreneur. In the 2000s, he sold his business, CD Baby, for $22 million and gave the proceeds to charity.
Derek has optimized his life “for creating and learning” and spends as much of his time as he can (often 12 hours a day, 6 days a week) passionately pursuing his interests. Known for his ability to compress complex ideas into succinct insights, he has written four books and is currently working on his fifth.
He was on the Infinite Loops podcast speaking to Jim O’Shaughnessy (yes Patrick’s father, the host of Invest Like the Best). I promise you will enjoy Derek.
This is a 1-min introduction to Derek.
7. One of the Economist’s favourite podcasts of 2023 is: Past, Present, Future with David Runciman, the host and creator of Talking Politics.
It’s a beautiful discussion of the history of ideas from the past, questions about the present and what’s shaping our future.
They had a recent episode discussing Umberto Eco and the true nature of scandals, secrets and the hidden workings of power. The episode explores the rise and fall of WikiLeaks, diplomats as spies, the value of face-to-face interaction, Julian Assange and the challenges of shaping information.
B. The Technology Section
1. Google released Gemini, its answer to GPT-4.
“This new era of models represents one of the biggest science and engineering efforts we’ve undertaken as a company," Google CEO said in a related blog post. Google claims that Gemini Pro outperforms OpenAI’s GPT-3.5 and that Gemini Ultra dunks on GPT-4 in most tests of its capabilities, including in reasoning, math, and coding.
It’s true beauty is that it’s multi-modal.
Here’s the team talking about it:
And a demo to show it’s capabilities.
2. If you’d love to go deeper into LLMs and Generative AI models, I have been taking this course on Coursera and can highly recommend it.
Its taught by Andrew Ng and team. You’ll learn how generative AI works, and how to deploy it in real-world applications. You’ll gain foundational knowledge, practical skills, and a functional understanding of how generative AI works, and you’ll dive into the latest research on generative AI to understand how companies are creating value with cutting-edge technology.
3. 7 Ways the Internet Will Get Weirder - my favourite were: Pixar for Everyone and Infinite Generative Worlds. Sometimes I think Rex Woodbury lives in the future.
4. Both the Trump administration and the Biden administration made moves to constrain China's ability to build out an advanced homegrown technology industry. But the country is still investing billions in its chip sector and there are signs that it's really starting to pay off.
Huawei recently released the Mate 60 Pro smartphone, with capabilities that shocked the world in terms of its performance. So how is the country making such strides in face of technological trade restrictions?
News And Charts You Might Have Missed
1. American couples are going child-free, opting for the double-income-no-kids (DINK) lifestyle. US birthrates took a steep dip during the Great Recession and have fallen since.
In a Pew survey from October 2021, 44% of nonparents ages 18–49 said they were unlikely ever to have kids, compared with 37% in 2018. Child-free couples living together earn an average of $138k/year, which is $9k+ more than couples with kids.
Fed findings also show that DINKs’ median net worth of $399k is bigger than that of couples with children ($251k) or adults with any other family status.
2. Taylor Swift currently holds 5 of the top 10 albums on the Billboard chart, the first living artist to do so in the chart’s 60-year history.
Her latest album, 1989 (Taylor’s Version), a re-recording of her 2014 album, joined Midnights, Folklore, Lover, and Speak Now (Taylor’s Version) in the top.
3. Why we need obesity drugs!
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Guilty Pleasure This Week: