SITALWeek #337

Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, hope, and whatever else made me think last week.

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In today’s post: This is one of those weeks where the stuff I thought about was narrow in scope given the state of the world and the war in Ukraine. Complex adaptive systems teach us to always expect the unexpected and to build resilience into systems in order to withstand disruptions, enabling us to adapt and grow beyond them. In that respect, today is no different than any other day in history. And yet, everything is always changing. For those caught in the crosshairs of the world’s chaotic perturbations, the idea that these disruptions are to be expected, however, is of scant comfort. While trivial in comparison to the war in Ukraine, investors and business leaders need to understand the range of outcomes for portfolio holdings/business units and use a Bayesian approach to adjust credences up or down as new information becomes available, while trying to remain as objective as possible. Such an exercise is difficult when the range of outcomes is as wide as it is today. Although it’s often challenging to avoid cynicism in the short term, a combination of skepticism and optimism is always the best course of action for long-term decision making.

Stuff about Innovation and Technology
Hardworking Hackers
AI and graphics chip maker Nvidia was hacked by a group that is demanding they remove restrictions on GPU cards to make them more able to mine crypto currencies. This seems like hacker overachieving to me: why not just demand ransomware crypto payments directly from victims instead of going through all the work to mine crypto? Meanwhile, hardworking hacktivists, numbering more than 400,000, are voluntarily attacking Russian assets, such as transportation, payment services, and media, to help give Ukraine an upper leg in the war, according to the FT.

Dataset Shift Cripples Critical AI
MIT and STAT reviewed the long-term effectiveness of the algorithms used by hospitals to predict patient stay, risk for sepsis, and other factors. Analyzing data from 2008 to 2019, the researchers found that an algorithm coded to mimic Epic Systems’ sepsis prediction algorithm, in ubiquitous use in US hospitals, dropped to only 53% effectiveness by the end of the study period compared to the company’s advertised 76-83%. (Both the Epic and test system rely on the same 68 input variables, but Epic has proprietary weightings). The main issue is a problem called dataset shift, whereby the algorithm stays constant despite evolving real-world data, which is a particular problem when the algorithm uses “operational features'' (e.g., ICD codes, tests ordered, medications prescribed) more so than physiological data, because care protocols tend to have more variability and shift more quickly than disease symptoms. Researchers found two main reasons for the decline in effectiveness of the prediction for sepsis. First, in 2015, the International Classification of Disease shifted to ICD-10, which allowed for more precise coding of patient conditions and billing amounts, while the algorithm was stuck with the old codes. Secondly, spurious associations from new data arose as the hospital group acquired new healthcare facilities, which led to a shift in how frequently/quickly certain tests were ordered and the observed onset of disease. Better reporting and notifications around algorithms that drift in effectiveness is merited, and, ultimately, algorithms should be self-learning and running tests of various combinations, much like a self-driving car might incorporate new data from roads. Obviously, the difference here is we are dealing with critical, real-time patient care. As I noted recently, the rise of simulated environments could be the next big advancement in algorithms, and simulating patients in a hospital could be a very interesting use case. For more on messy algorithms, see Algorithmic Threat to Illusion of Free Will.

Miscellaneous Stuff

Quantum Cartography
Quantum sensors continue to be a very interesting field, unlike the more hyped quantum computing, which may never amount to anything useful. I previously mentioned one example of quantum sensors used for biological imaging in #300. A new paper in Nature details using a quantum gravity sensor to map underground structures. As discussed in IEEE: “The group’s new gravity sensor uses clouds of about 100 million rubidium atoms cooled to two- or three-millionths of a degree Celsius above absolute zero. It analyzes the rate at which a cloud falls to deduce the local strength of Earth’s gravitational pull. Specifically, laser pulses drive the atoms into a state of superposition, with two versions of the atoms falling down slightly different trajectories. Those Schrödinger’s cat–like states of the atoms are then recombined. Then, due to wave-particle duality—the quantum phenomenon where particles can act like waves, and vice versa—these atoms quantum mechanically interfere with each other, with their peaks and troughs augmenting or suppressing each other. Analyzing the nature of this interference can reveal the extent of the slightly different gravitational pulls felt on their separate paths.” While these types of sensors have been in the lab for years, this group of scientists created a device that can be used in the real world, and they eventually hope to have a backpack-based quantum gravity sensor controlled by a smartphone.

Stuff about Geopolitics, Economics, and the Finance Industry
Breaking Down Cadence, Plaid Hippo Style
Back in October 2019, Brinton and I recorded an episode of Invest Like the Best with Patrick O’Shaughnessy. It never aired. We never heard why, but we suspected it was because it was chock-full of incredible information and the world simply wasn’t ready. Or, maybe we just weren’t Bestest enough. Either way, grudges are Negative Sum, and the spirit of NZS Capital is to share as much as possible with the wider community, so Brinton and Jon graciously agreed to go on Patrick’s sister podcast, Business Breakdowns hosted by Matt Reustle, to discuss the lesser known – but globally critical – Cadence Design Systems. Brinton and Jon share their thoughts on this chip design software company, including its roller-coaster history and salvation by Lip-Bu Tan, with colorful pachyderm analogies and fascinating detail.

Crypto’s Catch-22
I am eager to watch how sanctions on Russia and demands for crypto regulation play out during the Ukraine war. There are good reasons to regulate digital currency transfers to fight money laundering, terrorism funding, and other criminal activity like ransomware. So far, crypto platforms aren’t cooperating with most of the requests from governments. Bloomberg suggests that Russia could actually leverage its energy resources to mine Bitcoin, essentially turning oil into Bitcoins instead of selling the energy abroad (although access to chips to mine bitcoin is being cut off as well). As I’ve noted before (see #304, #314, #335), I think heavy and necessary regulation is coming for crypto currencies. Can these platforms accommodate legal requests and maintain the anonymity and anarchy that they idolize? If they accommodate regulation, they can’t be completely open; if they are completely open, they can’t accommodate regulation. Will the war in Ukraine provide a feather in the cap of crypto currencies, or a regulatory black eye? I would love to see the crypto industry come together to create a win-win solution that allows for the necessary minimum regulation of currencies that still promotes the needed innovation and disruption of the financial sector.

As Russia Becomes North Korea, Will China Become the Next Russia?
In “How I Learned to Stop Worrying About China” (#226, and more detailed follow-up thoughts in #307), I wrote: “Innovation requires free expression of creativity without fear”. As investors at NZS Capital, we focus on adaptable companies that create the most non-zero-sum outcomes and drive the digital transformation of the economy. We therefore have to focus our research efforts on regions where innovation and progress can thrive. As a result, it should come as no surprise that we spend no time researching companies in Russia for direct investments. And, we have not owned a company headquartered in China since we launched our investment products over two years ago (we were very active investors in China during the country's innovation renaissance earlier this century). However, as global investors, we own many companies that sell to or have a presence in Russia and China, so we pay close attention to these regions given their geopolitical and economic importance. As events unfold in Ukraine, I believe China has an important decision to make. If China continues to back Putin and move forward along Xi’s current path of increased fear and isolation, they will become as economically relevant as Russia is today – i.e., heading towards irrelevance. Or, China can choose to return to the path it was on up until 2018, and cultivate innovation and creativity, preserving its potential for progress and perhaps avoid obsolescence. I hope that China can return to the path of innovation and continue to be a key global economic participant.

The sanctions, both government and voluntary, on Russia, the 11th largest economy in the world, are somewhat staggering in their impact and scope. While governments around the world are engaging largely in public relations theory without any action, an allied force of global corporations are fighting Russia alongside the Ukrainians. The Russian economy has effectively been erased from global trade and markets. Investors, companies, and governments are liquidating holdings and exiting the country. Technology companies are ceasing sales into Russia and turning off services like smart-phone-enabled payments and credit card networks. The ability to freeze the economy of a country is a direct result of decades of globalization. Imagine the impact this would have if these penalties were also levied on the countries, like India, Mexico, and China, that are refusing to sanction Russia over its invasion of Ukraine. These countries have been key forces in globalization over the last several decades and have been engines of growth and deflation for Western economies (which has helped keep interest rates lower than they might otherwise be). Unwinding this interdependence would take decades at great costs to both sides. Globalization has also helped grow the economic pie for everyone in the world. As I’ve written about before, economic goals may be changing from growing to redistributing the pie, particularly as global population growth slows and (likely) turns negative this century. Nationalism, fear, and war: these rising trends may be a consequence of an expanding sense that the growing pie isn’t providing the nourishment it once did. If true, then leveraging technology becomes even more exigent for continued societal improvement and planetary wellbeing.

In the current era, this all-important deflationary technology runs on a supersized diet of semiconductors. As such, we’ve been focused on the strategic importance of Taiwan for several years and pushing for Western semiconductor investments, and I fear the scenario greatly where China decides to take a cue from Putin and go after Taiwan’s sovereignty. Hopefully, the crushing impact of economic sanctions imposed on Russia will be sufficiently dissuasive that China will not want to risk a similar fate. I believe there is a win-win outcome where China sides with the West against Russia in exchange for some of the semiconductor technology it desperately needs (not unlike the salvaged Iran nuclear deal to increase oil exports). Such a deal might also secure, at least temporarily, stability for Taiwan. But, that seems like an inconceivable long shot. It’s incredible to me that a soldier with an iPhone and Internet access would be willing to kill another human in the year 2022. How could you have access to the world’s information, the creativity of humans, and the magic and beauty of everything, and still want to kill? But, we humans have storytelling in our DNA and can be easily ensnared by any tale – no matter how fantastic – as long as it gives us purpose and a mission. It’s the reason we made it this far as an advanced species, and the reason we have the ability to obliterate the only known example of fully-conscious life in the Universe in the blink of an eye. I've written often about the problems stemming from our loss of a common culture as technology has fragmented humans into smaller, disconnected tribes (see L: With a Whimper, Not a Bang). War can be both devastating and uniting.

As I pondered current events, I remembered an idea Geoffrey West of the Santa Fe Institute pointed out: we can derive hope from the speed at which things go wrong, because that means they can go back to right just as quickly. I would suggest this might be in part due to technology accelerating cultural evolution. The oscillations between good and evil may speed up as humans continue to co-evolve with technology, until we find something close to a global cultural equilibrium. We wrote more about the pace of cultural change and West's theory of finite time singularities in Pace Layers. Here is West speaking in 2020 on the Complexity podcast:

"But the other curious thing is to do with the election of Donald Trump. And here I’m going way out there — I’ll probably be thrown out, probably be fired by the Institute after this — is the election of Donald Trump, which, in this context, gives me hope. Because it’s a very interesting example of something that most people thought could not happen.

And that is that, up until Donald Trump came on the scene, I think it was taken for granted throughout society, the complete spectrum of society, that it relied on rational discourse, exposing the truth, we agree on the facts. I mean, of course, there’s greyness around all of these, but, you know, there’s a certain discourse, the rule of law, we obey laws. We have respect for others. We treat people equally and with some sensitivity — those are sort of the fabric of society and what has been engendered in societies across the world, no matter what their size and origins, some form of those phenomena are part of what being a human being is and what being a social human being in a collective is, whether it’s a village, a city or a state.

And suddenly along comes someone who basically says actually, you know, you don’t have to believe any of that. You can tell lies, you can just ignore the facts. You can treat people like shit and so on. It’s okay. Appealing to what many of us feel is the dark side of a human being — and which we all have, by the way. I mean, we all have pieces of those in us. And Donald Trump in some extraordinary way was a catalyst for opening up a piece of the collective that is quite dark and potentially, I believe, quite dangerous and counter to the long forces of social progress across the globe. It’s not necessarily Western or Eastern. I think it’s been part of social progress informing sort of the urban planet. And it happened, and here’s what’s extraordinary. What’s truly extraordinary is it happened in less than a year. Now had someone proposed that, had some fancy-schmancy social scientist or economist with Nobel prizes and all the rest proposed that two years earlier, he would have been totally, you know, people would have thought he was a complete idiot. You know, okay, maybe something like that could happen, kind of 1984-ish, yes, but it would take 100 years or 50 years because that’s a whole social progress, but it’s there. The point is it’s potentially always there and Trump found the key to open it. I mean, he’s a cad; it’s not him. It’s there.

So, that’s my framework for having hope, because you could imagine an anti-Trump — could be Jesus Christ, could be Mahatma Gandhi, could be Nelson Mandela, who in the hell knows. Buddha. One of these people that have enormous charisma like Mr. Trump, enormous appeal that. instead of appealing to the forces of evil and darkness, appeals to the forces of good, of humanity, of love, appeals to the forces of love, which is in everybody, just as the forces of evil are, and he or she might have the key to ignite that and get us all to realize that, for the collective good, something has to change..."

✌️-Brad

Disclaimers:

The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC.  This newsletter is an informal gathering of topics I’ve recently read and thought about. I will sometimes state things in the newsletter that contradict my own views in order to provoke debate. Often I try to make jokes, and they aren’t very funny – sorry. 

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