A Few Things: Zoltan on Bretton Woods III, Jim Grant on the FED, Complexity Science, SaaS Returns, AI 2041, Balaji on Network State
August 31 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.
You can check out last week’s edition here: Books That Changed My Life, Marko Papic on Germany, Jony Ive on Focus, Julian Robertson's Wisdom, Vista on Enterprise Software Investing, Viking on Equity Long-Short.....
“Live all you can; it’s a mistake not to. It doesn’t so much matter what you do in particular, so long as you have your life. If you haven’t had that, what have you had?”
- Henry James
"What Orwell failed to predict is that we'd buy the cameras ourselves, and that our biggest fear would be that nobody was watching."
- Keith Lowell Jensen
“Dying societies accumulate laws like dying men accumulate remedies.”
- Gómes Dávila
"It seems, in fact, as though the second half of a person's life is made up of nothing but the habits they accumulated during the first half."
- Fyodor Dostoyevsky, explains the importance of habits
“Recognizing the unity in all life, one sees his own self in all other beings. This allows one to be impartial about all things.”
A. A Few Things Worth Checking Out:
1. The amazing Jim Grant, author of countless books and Grant’s Interest Rate Observer was on William Green’s podcast (one of my new regular listens). For those that haven’t heard of Jim Grant, he’s one of the most original thinkers on Wall Street and a keen observer of markets since the 80’s.
They discussed a ton of stuff, my favourite bits were:
42:53 - How the Federal Reserve sparked rampant inflation, why it’s scary, & how to deal with it.
55:16 - How central bankers illustrate the perils of overconfidence & the need for humility.
1:07:01 - What investment opportunities Jim sees in this high-risk economic environment.
1:35:07 - Why he adamantly refuses to invest in China.
1:53:10 - What Jim regards as “the most precious commodity” in life.
If you haven’t read William Green’s great book: Wiser, Richer, Happier: How the World’s Greatest Investors Win in Markets and Life, it’s a must read. In fact I think it’s so good, that someone stole my copy!
Here’s our discussion of the book from May 2021.
2. Zoltan Pozsar put out a new note further discussing his Bretton Woods III thesis. It’s useful but always verbose. I found this twitter summary easier to digest:
3. What fiction did you read this summer? My friends Hank B had recommended “Gentleman in Moscow” by Amor Towles and “Fear and Loathing in Las Vegas” by Hunter Thompson so I read those.
What were your big reads? I’m trying to read a lot more fiction for the rest of the year.
Complexity is a big idea.
Most of the most interesting things in our lives are complex systems. Your brain, the market, societies.
The science of complexity aims to explain how large-scale complex, organised, and adaptive behaviour can emerge from simple interactions among myriad individuals.
Professor Melanie Mitchell teaches Computer Science at Portland State University and is an External Professor at the Santa Fe Institute. I dove into her book, which led to then reading and watching a number of other sources. Thank you Dror Poleg for the introduction.
The book uses complexity science to explore everything from Human evolution to AI.
The big idea in complexity science is the emergent complex behaviour that occurs in a system even though it’s made of simple parts. This behaviour occurs because of the interconnectivity across the system - the network.
The cutting edge work being done here is to model complex systems - for example: your brain or the stock market. What is the math behind these systems and what are key things we need to know to be able to model behaviour?
Professor Mitchell believes that network thinking is critical to understanding how complex systems function, since so much of the complexity of our world is due to its interconnectedness across the pieces.
She comes away with a somewhat harsh views on the current state of AI research, specifically Machine Learning, which she doesn’t think is the right way to approximate how humans see the world. Primarily because human intelligence is about abstraction and context. Humans can analogous easily, but it’s much harder for machines to do so.
Incidentally she has just written a book on AI.
Here is one of her introductory lectures on Complxity, and is a good place to start.
You can get a flavour of her work from this chat she had with Lex Fridman.
C. The Tech and Crypto Section:
1. The folks at Meritech had a great blog post titled: Durable Growth and the Compounding Returns of Public SaaS Companies. They analysed the trading and financial data of public SaaS companies to determine the leading contributing factors to shareholder returns.
The basic question being what is the source of long term returns in SaaS companies?
The compounding nature of growth – and not the absolute growth rate – ultimately determines returns in the public markets, so this becomes a very important question companies should be asking in this market environment where capital is more scarce. And of course, there are many ways to grow – spend more on marketing to acquire more leads, hire more account executives (salespeople) to sell the product to those leads, launch new products to attach to the base of customers, acquire companies to grow revenue and expand TAM, etc. But growing, not with the fastest growth rate but with the most durable one, is the best way to ensure success (and high returns!) as a public SaaS company.
Which reminded me of this old chart from Morgan Stanley:
The key variable driving long term stock performance according to Morgan Stanley’s work is Sales and Profit growth.
2. Part of my fiction reading this summer was checking out Kai Fu Lee and Chen Qiufan’s AI 2041, published in 2021. The goal of the book was to use fiction to look 20 years ahead to see how our society could be transformed through AI and technology broadly.
The book is a collection of ten short stories thinking about the impact of technology on our lives in the 21st century. Each story is followed by an analysis by Kai Fu Lee discussing the technology in the story and its pros and cons.
The most thoughtful stories for me were “The Golden Elephant” - discussing big learning and big data and “Gods Behind The Masks” - discussing deepfakes, GAN’s and AI security.
He was on the Hidden Forces podcast Sept 2021 and covered the material well.
If you haven’t seen the Black Mirror Netflix series it’s a great way to the visualise the worlds created in these stories:
3. Balaji Srinivasan, has been on the podcast circuit recently discussing his book: The Network State.
Balaji is a big thinker and he combines many ideas. He’s not always right, and sometimes his ego gets the best of him, but he’s also early and has taught me a lot of new things. Which is to say, don’t take everything he says literally but think about how his ideas could impact the world we live in.
I watched some of interviews and walked away with the following ideas:
Technology has enabled us to start new companies, new communities, and new currencies. But can we use it to start new cities, or even new countries? He believes the current system has too many issues, not run properly, and so we need to restart it back at zero. He believes we don't have capitalism anymore, we have regulatory capture, we have interference, we have politics. We need to use technology to push back on the regulatory state.
Today, “government” and its incentives decide outcomes, but government wants stasis. While many in the citizenry understand the need for change to improve the system.
Historically when people wanted to create a new society, live by different rules, they would immigrate - for example: pilgrims left UK to come to America. Today, the Internet is that new land. New wealth and new assets are being built here. People leave physically regulated world to enter digital internet world with new rules. On the internet, we can be with people who we might have far more in common around ideology than those close to us in geography.
He envisions a Network State, where people opt into a network. They choose to build something together. Find people you have something in common with and build a vision together. No different than a company, but this is about how you want to live.
He spends a bunch of time thinking about the logistics of what exactly “A Network State” would look like and how it could be started.
This discussion the Bankless podcast is deep.
4. Alex Danco was on Web3 Breakdowns discussing Tokengated Commerce at Shopify.
Some big ideas here, my favourite:
[00:07:02] - How interoperability and platforms come together
[00:24:48] - The important role blockchains play in tokengated economics
[00:36:33] - Why can’t it be key-gated instead of tokengated
[00:47:55] - Signals that suggest tokengated commerce will be a big thing
[00:59:35] - Reasons why this might not have taken off in five years
and an example of this already taking off beyond just Shopify, example: MercadoLibre’s token based loyalty program
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