SITALWeek #304

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, broccoli, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: hacking's potential to drive a Y2K-like IT spending wave and force crypto regulation; Q2 update from NZS; TikTok > YouTube; electric airplanes; AI programming cobots; digital tech taking over restaurants; nondual quantum mechanics; the bullshit of books; how to do tech regulation right; and lots more below...

Stuff about Innovation and Technology
TikTok Piledrives Competition
Chipotle, Shopify, and Target are some of the companies accepting video resumes for open jobs via social networking app TikTok. You can even apply to become a WWE Superstar wrestler. In other TikTok news, the app has beat out YouTube, Netflix, and Facebook among US Android users, with an average of 24.5 hours usage per month. TikTok has rapidly outgrown other forms of phone-based entertainment over the last couple of years.

Adventures in Electric Aviation
Eviation is an electric commuter jet company with a prototype, Alice, that can travel around 500 miles at a speed of 250 mph carrying nine passengers and two pilots and has a max takeoff weight of 16,500 lbs. The company has not yet released battery details, so it’s not clear if they have overcome the 400 Wh/kg battery density long thought to be necessary to enable electric flight. Tesla currently achieves 250-300 Wh/kg in its EVs. Eviation’s first test flight could come later this year, with commercial flights starting sometime after 2024.

Gambling with Dominos
Domino’s partnered with DraftKings to let curbside pickup customers bet on whether their hot ‘za will make it to their car in less than two minutes from when they arrive. It’s a cute promotion; yet, I can’t help but imagine a future where we are using our phones to bet on every digital transaction...

Advertising’s Power Law
Five Internet platforms now account for 46% of all global ad revenues, according to GroupM. The big players today – Google, Facebook, Alibaba, ByteDance (TikTok), and Amazon – have 2.7x the share of 2010’s top five – Google, ViacomCBS, News Corp, Comcast, and Disney. This stark trend is a classic Information Age power law where market share follows data and value creation as an industry shifts from analog to digital. The outcome isn’t necessarily bad for consumers or the ecosystem as long as there is open access to the data (see more on tech regulation in the final section).

AI-Enhanced Coding
A collaboration between Microsoft-owned GitHub, Microsoft-backed OpenAI, and Microsoft’s Visual Studio programming tool has yielded an AI programming “copilot”: “GitHub Copilot understands significantly more context than most code assistants. So, whether it’s in a docstring, comment, function name, or the code itself, GitHub Copilot uses the context you’ve provided and synthesizes code to match.” Instagram co-founder Mike Krieger commented: “This is the single most mind-blowing application of ML I’ve ever seen.”

Digital Tech Fills Restaurant Labor Gap
I have fond memories of the 'Round the Corner' burger chain (a restaurant that other 90s-era Denverites might recognize!). The company expanded to over thirty locations in four states before going bankrupt (the parent company at the time was focused on growing their other brand, Good Times). The gimmick at Round the Corner was each table had a phone. You would call in your order to the kitchen, and the phone would ring when it was ready. You’d then go grab your order from the counter and pay up front when you were done. With the rise of QR codes at tables in restaurants, it seems like Round the Corner had the right idea with their nascent automation – it was a great example of using technology to work alongside/replace people, while giving the consumer a better experience. The WSJ recently reviewed the rise of table-top technology in casual restaurants. The NYT also covered the rise of digital tech in restaurants and how it may lead to a jobless productivity gain. In related news, more people are quitting their jobs than ever according to the Bureau of Labor Statistics.

Crypto Regulation Could Buy Time for Mass Cloud Migration
Supply chain hackers that exploit widely used tools, hardware, or managed service providers represent a new type of broad threat against a multitude of companies and government organizations. It’s worrisome that criminal gangs are increasingly leveraging advanced tactics previously only accessible to nation-states. The situation is a crisis, and cyber security insurance is being priced out of existence. The likely solution is to rapidly accelerate the shift to the cloud. Any company with software running on on-site servers (i.e., units you can physically walk up to and turn on/off) should migrate to modern architectures as soon as possible. The cloud is not immune to hacking, but shifting to the cloud and implementing zero-trust security – focused on identity and encryption – solves many problems of legacy, on-prem systems. Migrating to the cloud also shifts the blame, which many boards will be keen to do given the lack of insurance available and the existential threat posed by hacks. In many ways, I believe we could see the next five years mirror the IT spending frenzy of the late 1990’s Y2K software overhaul. It also would not surprise me if we see large companies ask Western governments for help with crypto currency regulation to slow down the primary vector hackers are using to monetize their crimes. It may be necessary to regulate crypto to buy companies time to shift to the cloud.

On-Cloud Hardware Spend Now Bigger than Off-Cloud
A new report from IDC shows that spending on hardware for cloud computing crossed over 50% of all enterprise computing hardware spend in 2020. That is not necessarily indicative of where enterprises are spending their overall IT budgets, especially since cloud platforms host many dedicated consumer apps, but it’s a milestone nonetheless. If we see an accelerated shift to the cloud due to security motivations, it could place an even bigger burden on semiconductor demand in a time of short supply.

Miscellaneous Stuff
Exploring the Heliosphere
We are constantly subject to bombardment by cosmic rays; yet, thanks to Earth’s magnetic field and our Sun’s heliosphere, only a minute fraction of the harmful ionizing radiation reaches our planet’s surface. The heliosphere is a massive, ribbon-like “bubble” composed of energetic neutral atoms (ENAs) surrounding our solar system. It’s created by charged solar wind particles (expelled by our Sun) colliding with electrons in the interstellar medium. The collisions strip the particles of their charge to form ENAs, which can then absorb cosmic radiation before it reaches our solar system. Understanding our own heliosphere might yield insights into the local environment of exoplanets throughout the galaxy, each of which is cocooned within their own astrosphere (formed by the stellar winds emitted by the star around which they orbit) and guide safer interplanetary travel.

Toxo’s Daredevil Influence
Toxoplasma gondii is a parasite that reproduces within the intestinal tract of feline hosts, with multiple animals (including humans) serving as carriers. For example, house cats typically acquire the parasite via ingestion of infected rodents or birds. Interestingly, the bugs can facilitate their spread to their intended host by making prey animals less fearful. Recently, scientists in Kenya noted that the parasite caused baby hyenas to act more recklessly around lions. While uninfected cubs stayed 300 feet away from their feline predators, Toxo carriers approached to within an average of 142 feet – which translated to a four-fold increase in predation – according to National Geographic. Toxo has also infected around one-third of humans and is thought to change our behavior as well. For example, humans carrying the parasite are more than twice as likely to be in car accidents.

Neuralink’s Brain-Machine Interface
Here’s an interesting interview with the head of the brain signals team at Neuralink. The company is aiming to create a neural interface that gives keyboard and mouse control to paralyzed people. The interview covers the bit rates and important feedback loops in training that create a better overall user experience.

B. rapa’s Rad Genes 🥦
We at NZS Capital are rather fond of broccoli...from a mathematical standpoint. Indeed, a variety of B. oleracea known as Romanesco broccoli, which has a natural fractal form, graced the cover of our very first slide deck. It turns out that broccoli’s close relative, B. rapa, is one of the most widespread plant species in the world – thanks to its triple genome. The excess genetic material essentially enlarges the landscape for experimentation and adaptability, allowing its descendants to do “some really cool, wacky things”. Adaptability is a defining characteristic not only of successful organisms, but of successful organizations, and is thus a key characteristic of any company in which we invest. So, go forth and prosper, B. rapa, and may your offspring be tastier than your photogenic cousin.

Books, Bullshit, and Buddhist Interpretation of QM
One of the great puzzles of modern physics is that we do not yet have a correct interpretation of quantum mechanics. While we understand a great deal about the model and its ability to accurately predict/explain real-world phenomena, we only have conjecture as to its actual, physical meaning. I recently read with interest Carlo Rovelli’s latest book Adventures in Helgoland. The book is Rovelli’s attempt to stitch together a Buddhist interpretation of quantum mechanics, and, indeed, the relationship between all things in the universe. By Buddhist I mean non-dualistic, e.g., not relying on a difference between the observer and the observed (aka the subject and the object). This analysis is in contrast to several Western, dualistic interpretations of QM, such as the many-worlds interpretation (which I am admittedly still fond of). The heart of Rovelli’s idea, as I understand it, is that you cannot make sense of any one thing in the universe if you don’t consider its relationship to everything else. It’s a nice idea, and nondualism is a theme I frequently look for in the world around me – I find it’s often much more correct than the dualistic viewpoint (which has been cemented in the minds of us Westerners going back thousands of years to ancient Greece – this is the heart of the tension in Pirsig’s Zen and the Art of Motorcycle Maintenance).

I get frequent requests for book recommendations (here is a list of books that influenced in part our investing philosophy), but I don’t read a lot of non-fiction books cover to cover. I liked the short book from Rovelli quite a bit, but I always keep in mind that books are a very effective way for bullshit to replicate itself. Someone has an idea, part of which is probably true, but most of which is just their own bullshit – so they write a book. Others read and reference the book, and bullshit propagates! The vast majority of books, like their digital cousins, aren’t bound by truth, reality, or peer review; yet, we tend to accord the ideas contained within more weight simply because they have been committed to ink (or pixels). My strategy for avoiding BS-traps is to tease out anything that appears objective and ignore the rest. Pop-science books almost never hold up (most of behavioral economics cannot even be replicated, and yet people still believe in the ideas put forth in Thinking Fast and Slow!). Business books are amusing because very rarely do any of their purportedly successful corporate examples/strategies persist long term. Diet advice books are the worst – as Mark Twain said: “Be careful about reading health books. You may die of a misprint.” Rarely do you come across a book that is startlingly objective or contains enough interesting theories or explanatory power to merit reading the entire thing. Biographies are a peculiar type of fiction – no one can ever know someone else truly, and no one can accurately recall details of their own life (here I am reminded of another Twain quote: “Biographies are but the clothes and buttons of the man – the biography of the man himself cannot be written.”). Of course, you can read non-fiction books by treating them as fiction or by directly recognizing that they are largely perspective, some of which may stand the test of time. Books about people's journey to uncover the truth, even if they don't find it, are perhaps special exceptions. In seeing someone else's path through time and information, it can often shed light on an unrelated truth you are seeking to uncover yourself.

Stuff about Geopolitics, Economics, and the Finance Industry
Tortoise and Hare Story of Regulation and Innovation
Tech regulation in the US and China has been in the news a lot lately. Here is a portion of my spot on CNBC last week discussing tech regulation and tech more broadly (and the full clip is available to CNBC pro subscribers). This newsletter by Matt Stoller covers some of the important recent developments in the US Congress, particularly regarding breaking up big tech platforms. We’ve written several papers on this topic which can be found here. There are a few points worth reiterating: 1) Historically, there’s been a long tug of war between innovation and regulation, and regulation always catches up; 2) When regulation does catch up, it tends to create regulatory capture – the rising cost of doing business paradoxically ends up shutting out rivals to the establishment; 3) Monopolies in the Information Age, if regulated correctly, could be a net positive (e.g., legislating open access to data collected by internet platforms would foster competition and innovation while preserving the monopoly-derived network-effect benefits for consumers).

Opioid Overdoses Underpin Rising YA Mortality
Young adults aged 25-34 in the US are caught in a rising wave of mortality due to drug – namely opioid – usage, the third such event since the 1950s. In the 1960s, cars and guns were at the root of surging mortality in this age bracket, followed by HIV in the 1980s/early 90s. I haven’t yet read Michael Pollan’s new book, Your Mind on Plants, (note: see above for my 2c on books, but I do like Pollan’s writing strategy of taking the reader along his journey of discovery), but I think he has compellingly argued that the war on drugs has led to the abuse of opioids, and that many now illegal drugs would be far safer than the Rx pills foisted on unwitting patients by Purdue Pharma and others. Pollan also discussed the ideas in detail in this Joe Rogan podcast. As Kurt Vonnegut once said, having a war on drugs is "certainly better then no drugs at all."

NZS Capital Q2 2021 Report
Our Q2 2021 letter to clients is available here.

DBJ Spotlights NZS
The Denver Business Journal recently highlighted our investing process here at NZS Capital, as well as our good fortune drawing investors since we launched 18 months ago. Here are a few excerpts (and, here is a PDF of full article):
“The Denver-based boutique investment company — which already has $1 billion in assets under
management — was born in 2020 from a team that worked together at Janus Henderson. NZS Capital uses a set of guidelines for the types of companies they’re investing in. One of those guidelines is to construct a portfolio with a mix of companies that are resilient and have optionality.”

“‘We think about the multiverse’...Johns will be the first to say that this line of thinking is geeky. But it’s the type of thorough consideration that he and his partner Brad Slingerlend built NZS Capital around. For almost 20 years, the two worked together at Janus Henderson in Denver.”

“Their non-zero-sum investing strategy essentially says that the secret to successful investing is to create more value than you take.”

“‘I hope that we’re all doing something we really love, and that’s investing. I hope we’re doing it together with people that would really make us better at the craft,’ Johns said. ‘And I hope we’re doing it for clients that really understand us, that we can really make a difference in their portfolio.’”

Time Travel to Make Better Decisions
With many folks on vacation last week, in case you missed my new essay on leveraging time travel and various tactics to improve decision making, you can read it here.

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

SITALWeek #303

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, DeLoreans, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: This week I have a brand new essay about how time traveling can help you make better decisions (PDF version). I explore the wide ranging genre of time travel movies and various ways to improve your decision making process for complex situations (like investing!). I had a lot of fun writing it, so I hope you enjoy it! SITALWeek's regular ramblings will be back next week

Time Travel to Make Better Decisions
Time is the school in which we learn,
Time is the fire in which we burn.
-Delmore Schwartz

Marty McFly: “What about all that talk about screwing up future events? The space-time continuum?”
Dr. Emmett Brown: “Well, I figured, what the hell.”

Every time we contemplate a decision, whether big or small, we are attempting to see into the future. In other words, the act of scrutinizing options and possible outcomes is a form of mental time travel. Can we see how this decision will play out? What are the odds we make the right decision? And, the single most important (and emotional) question: will I regret this decision?!? If I could somehow communicate with my future (and ostensibly more knowledgeable) self, what would I want to know now to make the right decision today? The idea of mental time travel is especially relevant to investment decisions, a topic that I’ll return to later in this essay.

Despite wanting to make better decisions and predictions, we are constantly stymied by the fact that the future is largely unknowable and becomes more opaque the farther into it we attempt to peer. We know from complex adaptive systems that there are too many factors, agents, and relationships to know precise details of the future state of the Universe with any meaningful degree of accuracy – chaos ensures we’re always betting against the house. As such, we all have rather spotty decision-making track records. And yet, we tend to think that we’re pretty good decision makers, largely thanks to our brain’s serial overconfidence (perhaps our survival as a species is predicated on having a heightened sense of control, however false, over the unknown). In reality, luck factors into our successes far more prominently than our brain wants to admit.

One of the biggest inhibitors of good decision making is our brain’s inability to see things as nonlinear. We tend to think in an analog, incremental way, but the world itself is dominated by exponentials, power laws, and compounding – all of which we struggle to conceptualize. From an evolutionary perspective, linear thinking is likely a lot more energy efficient and less mentally overwhelming, which would be important for quick decision making to ensure day-by-day survival, as was required of our human ancestors for hundreds of thousands of years. Under such challenging circumstances, linear thinking apparently yielded a decent enough solution in a sufficient number of cases to let us wade through life (while the slower, more cerebrally-intensive thinkers were perhaps subject to a higher number of predation events). For those of us fortunate enough to exist in the modern world, however, we have the luxury (or perhaps the imperative) to become more cognizant of our path through time and the myriad possibilities/probabilities encompassed by our endlessly branching future.

The path we took through time to get to the present moment and which we will follow into the future is only one of an infinite number of possibilities. This visual from Tim Urban is a great illustration of the alternative paths we didn’t follow to reach the present moment and the vast (and constantly evolving) array of future paths. Existentially, our narrow slice of the multiverse is the only path we can travel simply because it is the path we travel.

One of my favorite movie genres concerns time travel and the speed of time passing. These movies are a trove of insight into decision making, regret, and the folly of trying to change the past or predict the future. I think our cultural fascination with time travel boils down to our own regret over how little we confront the actual present, and, more specifically, how we often fail to be fully aware and present when we make decisions. What I’ve learned is that having a fascination with the present moment might be the only way to make better decisions about the future. As Russell Ackoff puts it: “I have no interest in forecasting the future, only in creating it by acting appropriately in the present.”

Time Travel Genres and What They Teach Us
I group movies involving time travel and/or relativity into five key categories. In the following discussion, I tried to limit my references to some obvious examples where knowing the genre wouldn’t be too much of a plot spoiler. This necessitated omission of some great examples, which I have instead listed at the end of this essay.

1. The devastating consequences of general relativity and speeding up/slowing down the passage of time: One of our biggest fears is that we’ll blink and life will be over. Indeed, our time on Earth isn’t even measurable in the timescale of the Universe. When movies highlight the idea that years can pass in mere moments, there is a special kind of discomfort that sweeps over us. Perhaps the most well-known example of this idea is Interstellar. And, Flight of the Navigator is a sentimental favorite from my youth. There are two ways to slow down time relative to an external reference: you can be near a large source of gravity, or you can travel at near the speed of light. In our paper Redefining Margin of Safety, we discussed this concept as it relates to company strategy and investing decisions:
Ultimately, what highly nimble companies are able to do is act in a way that slows down time relative to their competitors. The world is moving and changing at an accelerating pace, but with a Quality company operating in a long-duration, slow-growth industry dynamic, it’s possible to operate in a bubble in which time appears to move more slowly than in the frantic world around you. Imagine two paths connecting two points in time: one short path, where time is normal, and one long path, where time is stretched and slowed. Because time moves slower on the longer, time-dilated path, you have more time to react and adapt relative to your competition on the direct route, so when you both arrive [in the future], you have out-thought and out-innovated your competition.

This particular sub-genre of time travel also highlights an important element of decision making: the often futile attempt to beat entropy. Every time we make a decision, we are putting in energy and effort in an attempt to fight the chaos of the unpredictable future. Entropy is the slow cooling of the Universe from high information to low information. As things become more disordered and contain less information, entropy rises. This phenomenon is also what gives a vector to how we experience the passage of time (e.g., instead of experiencing the future before the past). As we wrote in Redefining Margin of Safety, “Much of what society has done is to try to create temporary order despite the long-arching trend toward disorder in the Universe. We build buildings, cities, communities and companies – we take organized energy and reshape it into all sorts of literal and figurative structures. But, it’s only a temporary, local increase in order, and, in the long run, the information value is lost and entropy rises. The trend toward more disorder means that predicting the future is very hard, if not impossible.” On the plus side, we’ve got a lot of time before the Universe fully cools (so much so that our existence will register as a miniscule blip on the timeline), and we have lots of free energy to play around with in the meantime. However, if we can heighten our awareness of the awesome and persistent power of entropy, it can help us be more aware and appreciative of the present. The more details we take in – the more we learn in each given moment – the slower we perceive the passage of time. This present awareness is the greatest advantage we can achieve in decision making.

2. Time traveling teams, solo do-overs, and unintended consequences: This popular premise typically involves two or more agents (either working together or unsuspecting of the other) or a single person attempting to change something that happened in the past or set up a better future. This storyline exemplifies our desire to repair past regrets and avoid future ones – sometimes it works, but only with an escalating set of moral dilemmas. The Back to the Future trilogy is a well-known example of team time travel. For solo time travel, The Butterfly Effect is a good example. Often, the protagonist seeks to redress regrets, save someone, or, the most common of all, win over their romantic interest. Relationships gone wrong might be the primary reason that people write time travel scripts! Trying to resolve unintended consequences tends to be the most popular theme for independent time travel films (often with a common writer/director), which offer wonderful glimpses into someone’s heart and past regrets.

There are a wide array of plot points/mechanisms for shifting in time that manifest in this and other time travel sub-genres. Frequently, some yet-to-be-discovered genius invents a time machine. Or, sometimes, time travel is all in someone’s mind. And then there are the odd ones, such as a camera that can snap a photo of tomorrow or a portal hidden in a bathroom (surprisingly, I am aware of at least two examples of the latter!). And, there is always the chance the Universe is just messing with someone.

The dilemma of unintended consequences reminds us of just how densely interconnected our world is. Even small changes can have vastly compounding effects that ripple forward through time, thwarting our attempts to predict the future and emphasizing the importance of being aware and intentional regarding our actions in the present.

3. Time loops: Groundhog Day with Bill Murray is the epitome of this gem of time travel movies. In life, we often make the same decisions over and over leading to the same bad outcomes. To redeem ourselves and get unstuck from the loop requires a lightbulb moment of insight. It’s a sad reality of life that, while we can easily spot the flaws in other people's reasoning, we are terrible at seeing our own biases and blind spots, leading to years, or even a lifetime, of lost time while we try to sort out what’s wrong. If only we could short-circuit the loop! Sometimes the answer lies in asking better questions, but, typically, it’s about seeing what’s right in front of us – something obvious we fail to notice, like the fish that doesn’t know what water is. The key to becoming unstuck is usually a fresh perspective on a situation from a completely different angle (e.g., what we try to achieve in our team discussions). This idea is similar to Galilean relativity – you cannot fully grasp a system within which you are embedded; therefore, you need to put yourself outside of the system.

4. The mental fog of time travel: This group of movies tends to have more of a sci-fi element. It’s tricky to give examples here without giving too much away, but 12 Monkeys comes to mind as a good one. When actions in the past can impact the future, shifting through time can be very disorienting. I view this as analogous to the mental gymnastics we often must go through in decision making or when we analyze our decisions, which can be uncomfortable and confusing. Could we have done things differently? If so, how? If the alternative required greater courage/risk, would we have? Was there information we missed? Sometimes it feels like we have memories of different branches through time even though we only traveled one of them. While we can always benefit from identifying previous mistakes, an obsession with the past can detract from our awareness of the present and our focus on what is within our power to change, leading to missed opportunities to craft a better future. Pattern recognition can be dangerous in a complex, unpredictable world, where we are likely to frequently encounter emergent behavior rather than just history repeating. As such, it’s important to fight the urge to rely on the past, even though doing so can create a feeling of instability.

5. Seeing your future self and messages from the future: This sub-genre is a good example of our desire to fast forward to the future to see how today’s decisions might play out. There is of course the Terminator series, and a special case of this idea is represented by Tom Hanks’ character in Big, where a chance encounter with an arcade fortune telling machine transforms him into an adult overnight. This plot type reminds me of the ‘work backward’ concept popular at Amazon: when they have an idea for a new product/service, they write the press release for its intended launch and then work backward to today when they are starting to develop it, asking the question: How did we get there from here? So, picture the world as you want it to be 10, 50, 100 years from now. Then ask: What step should I take in the present to put me on the path to making that future a reality? As we discussed in Complexity Investing:
“It’s important to distinguish between long-term intent or desires and shorter-term plans or actions. Intentions are the things that DON’T change...Plans tend to be linear and shorter term, but complex systems are nonlinear, placing a premium on the ability to adapt our short-term plans to a changing landscape. Intent should serve as a northstar throughout the winding paths life takes us down...To begin to move toward a new intention requires a plan and a step toward that plan. To take the step, we need a lot of confidence – after all, the path of least resistance is often to do exactly what we did yesterday. However, life acts like a huge noise field where it’s incredibly difficult to discern signal – there is an excess of possibilities out there. This is why mindfulness is so central to our framework. Identifying and avoiding cognitive bias helps us see and accept mistakes as we make them. An understanding of complexity crafts our ability to be humble. The ‘noisy’ nature of life (and complex systems) often results in our initial step of confidence being slightly off course. Because we get off course, it’s important to balance confidence with the humility to admit mistakes and course correct...once a better direction becomes clearer.”

Better Decisions through Time Manipulation and Mental Time Travel
Poet David Whyte asks the following questions: “What would it be like to start a conversation with myself that my future self would thank me for? What would it be like to become the saintly ancestor of my future happiness?” Oftentimes it’s not the answers we are looking for, but the right questions to ask. How can we converse with ourselves today in a way that we ask better questions and arrive at better decisions? There are a few exercises that I find helpful, including a few specific conversations we have at NZS Capital when we are analyzing companies.

Slow down time: Try and spot the figurative gravity wells and light speed hacks that allow your clock’s gears to turn more slowly than others’, which will create a huge advantage in decision making. This entails figuring out how you should be spending your time so that you are asking the right questions, gleaning the most useful information, and giving yourself time to analyze, digest, and connect dots. If reading the news or scrolling social media is not causing you to ask better questions, or if it’s pulling you out of your awareness of the present, then stop – it’s needlessly spinning your gears and speeding up time. Remember to focus on intentions. Focus on your awareness of the present and being extremely intentional about what you want to accomplish, and you will find you can achieve more in less time.

Focus on what won’t change: We often reference this concept from Jeff Bezos who famously said his primary focus at Amazon was on what won’t change: people will always want more selection, lower prices, and faster delivery. Rather than focus on the competition, Amazon tried to continue to improve on these three dynamics of their ecommerce business. While we spend a lot of our time desiring to know what will change when we make decisions, often inverting the problem and seeing what is unlikely to change is more useful. So, fast forward through time or imagine an array of different multiverses. What remains invariant despite changing time/space and the unpredictable future paths?

Perform pre-mortems: This exercise helps you determine what could go wrong before it happens. A pre-mortem is a way to try and picture yourself in the future and work backward to decisions made today. It’s similar in concept to Jeff Bezos’ regret minimization framework: “I wanted to project myself forward to age 80 and say, ‘Okay, now I'm looking back on my life. I want to have minimized the number of regrets I have.’” We do pre-mortems for every stock we consider investing in by transporting ourselves into the future and trying to guess at the answers in these scenarios: 1) We didn’t buy enough. Why? What questions/data would have clarified our understanding of the potential? And, 2) We should not have bought it. Why did we? What did we miss about the range of outcomes, the degree of predictions forced by the valuation, etc.? Similarly, if we are contemplating selling a stock, we try to answer these questions as our future selves: 1) We regretted selling it and ended up buying it back at a higher price. Why? And, 2) We never regretted selling. What negatives were there that we were right about? Often, the question isn’t about buying or selling outright, but getting to the truth of what position size an investment should be. We use specific metrics from our Complexity Investing paper to answer these pre-mortem questions in the categories of Quality, Growth, and Context (chapter 3) and Resilient or Optionality position sizes (chapter 6).

This exercise may sound simplistic and obvious, but the key is to make time travel feel as real as possible to fully experience the thoughts and emotions of your future self. Making mistakes in investing (and life in general) is personal and painful – it’s a gut punch of regret. So, we try to literally vault ourselves into the future and see what it feels like to be selling a stock at a major loss – it’s a horrible feeling, how could we have avoided it? The answer can only be in the present. What information are we missing today, or, more likely, what questions are we failing to ask? What is it about the range of outcomes that we need to better grasp? Imagine you have an actual time machine to travel five years into the future. Imagine which path you took through time to get there and which ones you avoided.

The Importance of Awareness
One of the most freeing concepts that can improve decision making is: it’s worthless to dwell on regret because there’s no going back. Whatever happened, happened, and it’s now permanently out of your control. So, take a few moments to learn what you can about the factors that influenced your decision and then put it out of your mind. There are thousands of factors that can play into decisions over which you have no control. Neuroscientist Robert Sapolsky shares some devastatingly great insights on this concept in his book Behave. Here is a passage listing just a few of the unconscious influences on decision making: “blood glucose levels; the socioeconomic status of your family of birth; a concussive head injury; sleep quality and quantity; prenatal environment; stress and gluticocorticoid levels; whether you’re in pain; if you have Parkinson’s disease and which medication you’ve been prescribed; perinatal hypoxia; your Dopamine D4 receptor gene variant; if you have had a stroke in your frontal cortex; if you suffered childhood abuse; how much cognitive load you’ve borne in the last few minutes; your MAO-A gene variant; if you’re infected with a particular parasite; if you have the gene for Huntington’s disease; lead levels in your tap water when you were a kid; if you live in an individualist or collectivist culture; if you’re a heterosexual male and there’s an attractive woman around; if you’ve been smelling the sweat of someone who is frightened. On and on. Of all the stances of mitigated free will, the one that assigns aptitude to biology and effort to free will, or impulse to biology and resisting to free will, is the most pernicious and destructive.” (p. 597-598). So, focus on what you can control – your awareness of the present – to create a better backdrop for decision making, and then try not to regret decisions as soon as they are relegated to the immutable past.

The idea of cultivating awareness and how it goes beyond plain old thinking is an important concept that’s vastly too complex to address herein. We touched on mindfulness in chapter 5 of Complexity Investing, and, as a starting point, I might suggest Sam Harris’ Waking Up app. The following is from Loch Kelly’s book (which I highly recommend) Shift into Freedom:
“One of the most important developments in human evolution is the ability to think. However, an even more important development is the ability to grow beyond thinking. To do this, we need to discover the intelligence that’s inherent in awareness itself. It is important to note that growing beyond thinking is not a regressive, dumb, or irrational state. Consider the innocence of a young child at an adult party, who asks the group of adults what they would do in this situation: ‘Imagine you are surrounded by hungry tigers with a cliff behind you. What would you do?’ Each adult comes up with a different creative solution, but the boy just shakes his head. So they turn to him and ask, ‘What would you do?’ The boy smiles and says, ‘I’d simply stop imagining.’”

Conclusion

Time travel movies are full of paradoxes. For example, the classic causal loop: a future event is caused by a change in the past, which causes the same future event. Or, there's the grandfather paradox: altering the past means you might not be the same person, who in the future goes back to alter the past (literally interpreted, if you travel back in time to kill your grandfather, you would never be born to travel back in time to kill your grandfather, therefore you would be born, etc.). Marty McFly learned this paradox firsthand when he accidentally stopped his parents from dating in high school. Making decisions is also a paradox: we desire to see into a future that we can never truly know. It would be nice if reading (or, in my case, writing) this essay were sufficient to erase the longing to travel back in time to fix decisions and instantly transport forward to see the future. I'm afraid these paradoxes cannot be resolved. Instead, I hope that I’ve made the case for cultivating awareness in the present, which should ease the dual burdens of decision remorse and wanting to know the unknowable/predict the unpredictable. While we can harness deliberate and intentional mental time travel to our advantage, as with my example of the pre-mortem, our obsession with the impossible is just a mental trap that drains energy and shifts our attention away from the present. And, the actual present is our only window of opportunity to make decisions that positively shape the future. By cultivating awareness, trying to slow down time, and finding the right questions to ask (e.g., working backward, what won’t change, pre-mortem analysis) we can attempt to create a landscape for decision making that allows us to see good fortune when it comes knocking and take the next incremental step toward a better future. Since we can never know the future, perhaps it’s best to take Doc Brown’s advice: “Roads? Where We’re Going, We Don’t Need Roads.”

Select time travel movies by category:
[Warning: even knowing a movie involves time travel can be a spoiler, so feel free to skip this section! The following are just a few selected highlights of time travel flicks I've seen, but if you have a favorite not listed here, send it my way.]

1. The devastating consequences of general relativity and speeding up/slowing down the passage of time: Time Trap, Interstellar, Flight of the Navigator

2. Time traveling teams, solo do-overs, and unintended consequences: Teams: Project Almanac, Primer, Time Freak, Frequently Asked Questions About Time Travel, Time Lapse; Solo do-overs: The Butterfly Effect, About Time, 41. Misc: Midnight in Paris

3. Time loops: Groundhog Day, The Map of Tiny Perfect Things, Source Code, Palm Springs, The Endless, The Infinite Man

4. The mental fog of time travel: 12 Monkeys, Donnie Darko, Timecrimes, Your Name (2016)

5. Seeing your future self and messages from the future: Terminator series, Looper, Big

6. The popcorn classics of my youth: The Bill & Ted and Back to the Future trilogies

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

SITALWeek #302

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, swamp gas, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: the downsides of being in the office; the big maintenance savings on EV fleets; cookie wars; Microsoft’s assault on app stores; the struggles of gig workers and the flight of leisure sector employees; PayPal’s puzzling pricing; companies seeking long-term investors; puffy sails; and lots more below...

Stuff about Innovation and Technology
Reinventing the Sail
Michelin has created inflatable sails for ships that could reduce fuel consumption by up to 20%. The Wing Sail Mobility (WISAMO) is a “puffy, inflatable structure [that] towers over the vessel, resembling an enormous meringue with a spine of stiff peaks. At sea, it cuts through the wind like an airplane wing, sending the sailboat flying across the water. Now Michelin wants to fit the technology onto cargo ships. The goal is to harness wind energy to reduce the use of diesel fuel—and thus curb greenhouse gas emissions.”

Open Office Creates Tunnel Vision
Tony Hsieh used to advocate for ad hoc collisions – random run-ins that connect people/concepts and lead to creative, innovative paths that might not have otherwise been traveled. Hsieh even calculated that his schedule allowed for 1,000 “collisionable hours” per year back in 2013. It seems intuitive that these sparks of insight would happen more often when you are around other people, rather than sitting at your desk, isolated in your home office, or zoned out on Zoom. However, the NYT would like to dispel this myth with data: having employees physically in the office doesn’t appear to lead to more innovation. But what about those open floor plan offices with rows of desks and cubicles? Surely they foster more creative interaction and improved results? Nope. Ethan Bernstein, professor at Harvard Business School, found that open offices decreased face-to-face interaction by 70% as people found them too distracting and opted to don headsets and focus on their screens instead. It’s possible that removing distractions, increasing the potential for a diverse workforce (rather than pulling from the comparatively small pool of people willing and able to commit to full-time in-office work within a ~20-mile radius or relocate), and increasing inclusivity of all views/opinions might be at least as good with remote vs. in-office, and perhaps better. I am reminded of John Cleese’s great speech on creativity from 30 years ago: creativity may come from childlike play and isolation, two things that are antithetical to being in an office (please excuse Cleese’s jokes, which feel a little off color from our perch in the 2020s). Time will tell if remote work is actually better than in-office long term, but I am excited so many companies have decided to run the experiment, which, shorter term, will be a competitive recruiting advantage over the luddites still milking dying businesses from the 1800s and 1900s.

EVs Save Fed $78M in Maintenance
The US government, which owns the largest electric vehicle fleet globally, reports that the cost to maintain EVs is 40% lower than gas vehicles. With 2B miles driven in 2019, the 4c per mile savings amounts to $78M per year, and that’s just maintenance without accounting for the cheaper fuel (or the environmental benefit of lower emissions). The costs that were similar were brakes, tires, wipers, headlights, multi-point inspections, and shocks, while the cost savings came from all the traditional problems with the extra 10,000 parts of an ICE: transmission, spark plugs, oxygen sensors, belts, oil changes, etc. This seems accurate for fleet vehicles driven many miles. For personal EVs with much lower utilizations, the cost savings over the ownership period (as opposed to the per-mile period) I believe are vastly greater. We’ve been driving the same Nissan Leaf since 2013, and the only costs have been tires and tire rotations, which basically round to zero. Dutch grocery delivery company Picnic recently discussed its high tech electric vans and how increased efficiency can be gained by matching driver style with routes and precision charging algorithms that extend battery life.

Twitch Musicians Minting Money
A new report titled Twitch’s Rockonomics, from the former Chief Economist at Spotify, identifies several musicians making significantly more money on Twitch than on music streaming services (it's worth noting that Twitch appears to have sponsored the report, but it is still interesting). I discussed the various dynamics of the music labels, streaming, and how artists can increasingly fund their careers directly with fans in SITALWeek #300 (section titled “Beat It Mr. Tambourine Man: Record Labels are Glorified Banks”).

Ultra-Low-Power Gigabit Transmission
RFID works through a radio technology called backscatter. Instead of creating an RF signal, a backscatter radio is a scavenging device, repurposing ambient RF signals for powering and encoding its own transmissions. An antenna detects incoming RF signals, converts them to small amounts of power, and then uses that power to alter the signal and reflect it back out. Traditionally, backscatter radios, like the ones in RFID tags, can only transmit kilobits per second of data; however, newer techniques are demonstrating transfer rates up to hundreds of megabits, and even gigabits, per second. The new devices use millimeter-length signals over shorter distances but could greatly increase the ability to extract data from IoT devices with very little power. The transistors involved are also so simple they can be cheaply printed with silver nanoparticle ink.

Google Grants Cookie Reprieve
Google is delaying third-party cookie blocking in Chrome browsers until the end of 2023. The two-year delay comes as a surprise. Google said the delay is over concerns that small publishers, who rely more heavily on third-party tracking to serve ads, would be harmed unless better alternatives are available for serving anonymously targeted ads. Further, until an alternative is in place, less availability of cookies could increase an ad industry practice known as fingerprinting, which can be done with even less control by, and transparency to, users. Various players in the ad tracking sector are struggling to come together with a plan to protect privacy. Meanwhile, Apple continues to exert control over the iOS platform in a way that emphasizes privacy (the rising adoption of iOS 14.5 and 14.6 is causing a significant shift of ad dollars from iOS to Android, according to Digiday). Users can of course turn off third-party cookies on their own in the browser’s settings (which I personally recommend) or use alternatives like the Brave browser. Brave also introduced a search engine last week that competes with Google. Notably, the company created its own search index rather than relying on Google, Bing, or privacy-focused alternative engines such as DuckDuckGo. Brave also blocks FLoC, which is the alternative tracking mechanism Google proposed to replace third-party cookies. Unless Google steps up its privacy protections, the lines are clearly being drawn between Apple’s walled fortress approach and Google’s conflicted, ad-driven business model. Meanwhile, as the value of first-party data rises, Amazon has removed third-party ad platforms, like The Trade Desk, from its Fire TV video service. We should expect this trend of creating walled gardens around proprietary data to continue (see #300 for a little more on this topic, including why it’s not necessarily bad for consumers).

Nadella’s Non-Zero-Sum Strategy
In a series of announcements about the new Windows 11, Satya Nadella lays bare the hypocrisy and problems of the current iOS and Android app store policies: “In our case at Microsoft, I’ve always felt that, at least the definition of a platform is: if something bigger than the platform can’t be born, then it’s not a platform. The web, it grew up on Windows. Think about it. If we said, ‘All of commerce is only mediated through us,’ Amazon couldn’t exist, if we had somehow said, ‘We’re going to have our own commerce model.’” Microsoft cut its app store fees to 15% and announced Android apps would run on Windows 11 via the Amazon app store to start; and, eventually, any Android app store will be able to run on Windows with its own payment terms and fees for developers. This Verge interview with Satya has a lot more about Satya’s views and strategy. There is no valid justification for the way Android and Apple are running and controlling their app stores. The only businesses that can make these high fees work are ones with high margins, which means a ton of interesting businesses are either missing from our mobile world or are forced to live off of advertising.

Gig Economy’s Negative-Sum Game
This Wired magazine profile – of the difficulties of making it as a gig worker – is an eye-opening read. There is nothing new here, but it puts a spotlight on the problems in the industry. The Venn diagram of the three financial sides of these businesses – gig economy platform profits, gig worker wages, and consumer budgets – have virtually no overlap in reality without heavy subsidization from VCs and public market investors. If workers are going to make enough to keep doing the job, the requisite price increases would likely significantly shrink the pool of customers who can afford the services. There are pockets, like pizza delivery, where vertical integration and food specialization (e.g., turning food into salted cardboard) seem to allow for a decent-sized market, but general gig businesses, as they exist today, are a real head scratcher for me. Even when I apply the evergreen argument of “just wait until they scale up”, I still get confused. We couldn’t have had a better testcase than last year for delivery to prove itself viable for all three sides, and I’m left underwhelmed. However, I am still optimistic about vertically-integrated delivery services with purpose-built fulfillment centers, their own delivery vehicles/agents, and delivery models that include routing, subscriptions, and membership.

Regardless of how the non-overlapping Venn diagram plays out, the labor issue remains a big conundrum, with service jobs across the economy underpaying vs. the perceived value of the job for workers. WaPo reports that 649k workers left the retail industry just in the month of April in search of better paying jobs where they don’t have to deal with belligerent customers. And, it’s not just retail; according to WaPo’s The Lily magazine: “Restaurant workers have been leaving their industry — which is predominantly staffed by women — in droves, with the April quit rate for the accommodation and food service sectors reaching 5.6 percent, the highest of any recorded industry since at least December, according to the U.S. Bureau of Labor Statistics.” Disney is offering $1,000 signing bonuses and has reinstated its paid summer intern program as it tries to hire back previously laid off cast members at Disney World.

PayPal’s Antiquated Pricing Logic
I am admittedly perplexed by PayPal raising their fees for small- and medium-sized merchants in the face of new competition from Shop Pay and others. The fees will rise from 2.9% plus 30c to 3.49% plus 49c. Personally, I still avoid the PayPal button even though they’ve improved the experience a little over the years, but I don’t hesitate to pay with Shop Pay, Amazon Pay, Square, or Google Wallet whenever they are available on the web, in apps, or IRL because the experience is so good. PayPal reports that shoppers are three times more likely to complete a checkout when PayPal is an option, but these stats from wallet providers always seem dubious to me – people who often use wallets are more likely to convert to begin with. In an interview with Reuters, PayPal’s SVP for small and medium businesses, Dan Leberman, said: “We are changing prices to help our customers understand even more clearly where we provide value”, which is a pretty funny way to pitch a price increase. In general, at NZS we think pricing power is more representative of a vulnerability than a strength in the Information Age. Companies that take share of the economy as it goes from analog to digital are those that offer more value for less, not less (or equal) value for more. It seems like PayPal is overplaying a mediocre hand at a time when there’s no shortage of challengers providing more/equal value for less.

Miscellaneous Stuff
Pale Blue Dot in Plain Sight
As we eagerly await the full government report confirming various UFO sightings are in fact unidentified flying objects rather than “Swamp gas from a weather balloon [that] was trapped in a thermal pocket and reflected the light from Venus”, MIT Technology Review discusses a new Nature paper suggesting 1,715 nearby stars have been in a position to spot signs of life on our pale blue dot over the past 5,000 years. While we’ve only been pumping radio waves into space for the last century, signs of life, like oxygen and methane, are detectable from long distances with the right technology. As Carl Sagan wrote in Contact, “The universe is a pretty big place. If it's just us, seems like an awful waste of space.”

Stuff about Geopolitics, Economics, and the Finance Industry
Focus on Non-Zero Sum to get Long-Term Shareholders
Twilio and Asana will do a dual listing on the Long-Term Stock Exchange (LTSE). Both companies, whose CEOs are also coincidentally investors in LTSE, are able to craft their own mission statement for listing on the LTSE, which touts the goal of aligning companies and investors that think long term. If only there were some other large, liquid stock exchange where listed companies could create and communicate long-term incentive plans to help potential investors decide whether to become long-term shareholders. Just think how much better it could have been for Amazon if Jeff Bezos could have focused on the long term and had long-term shareholders. I am, of course, joking. It’s not clear to me why any company would add the expense and complexity of a less liquid exchange that accomplishes nothing more than ESG virtue signaling. Companies earn the shareholders they deserve through communication and execution regardless of where the shares are listed. Volatility is opportunity – not risk – so, to the extent investors are short-term focused on normal stock exchanges, it creates opportunities for long-term investors (and for companies that repurchase their own shares). We dive into how we think companies can create long-term value in more detail in our 2019 whitepaper: Non-zero Outcomes in the Information Age: Broadening the Definition of Fiduciary Duty for the Mindful Investor and Company.

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

SITALWeek #301

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, cobots, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: lawn mowing robots and deflationary cobot trends; agtech; robots taking over bike lanes; big platforms retreat in healthcare to focus on wearables; merchandising streaming; tokenomics and a shift from profit maximization; creating the digital copy of the world for better building design; stimulating the vagus nerve; and lots more below...

Stuff about Innovation and Technology
AI Enables Perfect Lawn Stripes
Scythe is an autonomous electric lawnmower designed for landscapers. Once it learns a yard, it can mow on its own (using AI/sensors to spot potential hazards so the local golf course doesn’t turn into a scene out of 1989’s Blades, the Jaws-meets-Caddyshack mashup with a sentient lawnmower instead of a shark) while the operator tends to hedges and whatnot. Lawn tools are notorious environmental and noise polluters, and this video demo implies the electric Scythe is significantly quieter than a typical 90dB gas mower. Scythe is a good example of how autonomous technology will find a market in purpose-built robots well ahead of consumer vehicles. Having AI working alongside humans is also a viable method for countering inflationary trends, ultimately eliminating some jobs in industries where humans can work alongside cobots to do the job of more than one person.

Bike Lanes = Robot Lanes
With fully autonomous vehicles far off on the horizon (see #298), bike lanes are going to be co-opted by a slew of delivery bots traveling at bike speeds, such as the pizza-delivering REV-1 in Austin. This move is likely to create a new emphasis on bigger, safer bike lanes, which could result in more biking as well. Cyclists should also benefit from the fact drivers will probably exhibit more care regarding bike/bot lanes that include robots delivering precious ‘za.

Ag AI
John Deere now has more software engineers than mechanical engineers. Its CTO discusses AI farming: the “idea of enabling each individual plant in production agriculture to be tended to by a master gardener. The master gardener is in this case probably some AI that is enabling a farmer to know exactly what that particular plant needs, when it needs it, and then our equipment provides them the capability of executing on that plan that master gardener has created for that plant on an extremely large scale.
You’re talking about, in the case of corn, for example, 50,000 plants per acre, so a master gardener taking care of 50,000 plants for every acre of corn. That’s where this is headed, and you can picture the data intensity of that. Two hundred million acres of corn ground, times 50,000 plants per acre; each one of those plants is creating data, and that’s the enormity of the scale of production agriculture when you start to get to this plant-by-plant management basis.” The full interview is worth a read to understand the software, data, connectivity, and semiconductor challenges in the ag industry.

Pan-Fueled Email Surge
Microsoft’s Work Trends report on hybrid work shows that we sent over 40B more monthly work emails compared to pre-pandemic. By May of 2020, we were sending around 25B more emails, which steadily climbed to 40.6B by Feb 2021. The top productivity software providers, Microsoft and Google, are both pushing workers toward chat and meetings to replace some of that one-way email communication and lessen the gap to competitors like Slack. Google enabled chat and rooms for all Gmail users, and Microsoft has some new meeting features designed to put office and remote workers on more equal footing.

Wearables are Healthcare’s Only Hope
The tech giants have tried to disrupt healthcare for at least fifteen years, starting with Google Health’s first attempts to digitize health records in 2006. That effort was discontinued in 2012, restarted in 2018, and now Business Insider reports Google health is reorganizing again with employees moving to search (e.g., for connecting people to doctors and diagnostic services) and Fitbit (which Google acquired earlier this year). Apple has also struggled with its ambitious healthcare efforts, according to the WSJ, and recently narrowed its focus to just the Apple Watch. Similarly, Microsoft launched consumer health initiative HealthVault in 2007 and subsequently shut it down in 2019. Amazon, for now, remains the sole platform pushing forward with broad health initiatives that go beyond wearable technology (covered briefly in #297 and #289). I would think AI, combined with data from wearable devices, has the best shot at slicing through the Gordian Knot of systemic misaligned incentives in US healthcare (or, as mentioned last week, the “sickness and disability-care” system, as Russell Ackoff calls it).

Ambient Merch
Netflix is looking to emulate Disney’s success in merchandising content. Merchandising is most successful in conjunction with long-lived theme properties and shows with high-frequency viewing, like kids’ shows on ViacomCBS’ Nickelodeon that are watched daily. As such, merchandising would be somewhat at odds with Netflix’s binge viewing strategy and relatively short-lived shows (side note: binge watching has been losing out to weekly releases as viewers shift to the new streaming apps from the big studios; personally, I prefer the weekly release, especially two episodes a week like HBO Max did with Hacks). Netflix is often criticized for the dreaded post-season-two cancellations as they create more and more new content to keep the subscriber treadmill running. I’d like to believe that great content comes first, and merchandising is a side effect, but one thing I learned from the great documentary series The Toys that Made Us (which Netflix distributed but did not produce) is that oftentimes the toys come first, and then the shows are created around them. Disney’s strength is clearly in creating universes of characters and high-frequency episodic stories with authentic, personal connections that, in turn, create the opportunity for merchandising and in-park experiences (I've been hoping for Netflixland for over two years). While there is some great content on Netflix, there is a lot of ambient TV, which is unlikely to create durable franchises. Netflix opened a store (using Shopify) last week to sell merch tied to shows like Stranger Things and The Witcher. I would probably buy a The Toys that Made Us t-shirt.

Tokenomics: DeFi’s Inverted Business Model
Mark Cuban penned an interesting essay on how DeFi businesses can avoid costly, dilutive fundraising by creating a “near zero cost token that they distribute in accordance with the tokenomics they defined to their community (and whose approval is required to make any changes).” (Tokenomics is the way the various tokens created by a blockchain business are governed.) Cuban expands: “where a crypto based business competes with a traditional business, the crypto business may have a significant cost of capital and cost of operations advantage. There are a lot of financial institutions that should be concerned.” And then there’s the big mental inversion that those of us who have looked at traditional businesses forever need to make: these companies don’t maximize profits, they maximize token value. Which leads to a different concept of governance: token holders are in control (depending on how the token system is structured), so, in effect, customers could be driving the product’s strategy. This essay by John Chen, sent to me by a reader, discusses the marriage of tokens and SaaS, suggesting a new model for acquiring customers with token incentives.

Nvidia's Rapidly Expanding Omniverse
Nvidia co-founder and CEO Jensen Huang did a press conference covering a range of interesting topics. He ties together the increasingly connected potential of the metaverse, blockchain, and DeFi, arguing that the digital economy will dwarf the analog one: “In the case of Omniverse, back to that again, let me make a couple of predictions. This is very important. I believe that there will be a larger market, a larger industry, more designers and creators, designing digital things in virtual reality and metaverses than there will be designing things in the physical world. Today, most of the designers are designing cars and buildings and things like that. Purses and shoes. All of those things will be many times larger, maybe 100 times larger, in the metaverse than in our universe. Number two, the economy in the metaverse, the economy of Omniverse, will be larger than the economy in the physical world. Digital currency, cryptocurrency, could be used in the world of metaverses.” Huang also described how Nvidia’s new HQ was completely designed using the company’s chips and Omniverse design tools to optimize for natural light while minimizing the need for air conditioning. The hallways are wider to accommodate future robots scooting around, and everything can be simulated in a photorealistic digital copy. And, he also threw some shade on AMD and Intel by calling CPUs commodities, even as Nvidia is supposedly still trying to buy Arm: “Nvidia doesn’t make commodity components. We’re not in the DRAM business or the flash business or the CPU business.”

Cloudflare’s Alternative to Cloud Computing
Macrometa is a distributed database company built on Cloudflare Workers, the serverless application platform. In some sense, Cloudflare is building out an alternative to cloud platforms like AWS. Ultimately, running applications on Cloudflare could be less expensive than on the large, centralized cloud data centers because an edge processing approach avoids the costs of having to move data in and out of the cloud and improves speed. Running at the edge also helps with low-latency or critical applications like autonomous pizza delivery robots. Also, it’s worth emphasizing the importance of platforms, including Cloudflare, that enable the creation of new businesses, an indicator of non-zero sumness and long-term success in the Digital Age.

Miscellaneous Stuff
Bioelectric Medicine
We covered the vagus nerve in SITALWeek #226, noting: “its ubiquitous importance, including in mood regulation (perhaps because 95% of the body’s serotonin is produced in the enteric nervous system and connected to the brain via the vagus). You can take care of your vagus with stretching, deep breathing, yoga, massage, and other forms of movement.” In SITALWeek #255, we mentioned gammaCore, a vagus nerve stimulator that received emergency FDA approval for treatment of COVID-induced asthma. A new study shows that using the gammaCore to send millisecond bursts of electricity to the side of the neck releases wakefulness chemicals, which helped Air Force members perform better after all-nighters. The device has been previously shown effective in treating cluster headaches and migraines. The vagus nerve has more than 100,000 fibers connecting nearly every internal organ to the brain, and governs aspects of basic bodily function, memory, emotion, and our sense of self. This Science Magazine article covers the vagus nerve and interoception, including the various ways the mind and body are much more connected (e.g., mood, metabolism, and digestion) than conventional wisdom would lead us to believe.

Stuff about Geopolitics, Economics, and the Finance Industry
NZS’ Chief Beekeeper Talks Complexity
Brinton was on the MOI Global podcast talking about NZS Capital and Complexity Investing with host John Mihaljevic:
“We had the pleasure of speaking with Brinton Johns, a co-founder and investor at NZS Capital, about the firm’s investment philosophy and process.
Specifically, we dug into the topic of complexity investing, which Brinton and his team have championed for years.
NZS believes that ‘the economy and the stock market are best understood as biological systems: specifically, complex adaptive systems. Complex systems have unpredictable outcomes; therefore, as investors, we focus on companies that are adaptable, long-term focused, innovative, possess long-duration growth, and maximize non-zero-sum outcomes.’
In 2014, Brinton and fellow NZS co-founder Brad Slingerlend published a white paper on complexity investing. The paper remains highly influential.”

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

SITALWeek #300

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, music, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: reflecting on record labels as specialized lenders and the predictable decay of the stars of our youth; AI for chip design; Apple’s gift to Google, Facebook, and Amazon; elephants; brain mapping; quantum sensors; systems thinking wisdom; and lots more below...

Stuff about Innovation and Technology
Semi-Solving Ferrari’s Digital Future
Ferrari chose a former semiconductor executive as the luxury car maker's new CEO. Perhaps it's a reaction to the rising importance of chips in everything, but it's certainly an indicator that technology know-how is increasingly important in legacy industries. It’s worth noting, however, that chips are just one piece of the puzzle. IEEE reports in "How Software is Eating the Car" that cars now have well over 100M lines of code, and that complexity is just getting started. Successful transition from an Industrial-Age to Information-Age business requires a combination of software, hardware, user interface, data, AI, and vertical integration all working in harmony to create more value for customers than the company takes in return (lest they leave themselves exposed to disruption from an upstart with a better value proposition). It’s a transition few, if any, legacy companies have so far managed to pull off.

StealthCare
Walmart’s innovation lab, Store Nº8, has hired a doctor to run a new “stealth” health initiative seemingly focused on “access to high-quality, equitable and affordable healthcare at scale”.

Europe Spearheading Grocery Evolution
Many startups across Europe are focused on disrupting the grocery industry with new purpose-built warehouses and logistics, like the successful Picnic in the Netherlands. Germany's Flink raised $240M recently, and Turkey's Getir raised $555M. Another German grocery startup, Gorillas, is said to be raising $1B. This level of investment has not yet breached the US grocery industry, which is largely relying on existing stores and third-party delivery services (see last week’s post on Instacart for how that might change).

Smarter Chip Design
Google continues to find ways to use AI to design more efficient semiconductors. A recent Nature paper details how AI can locate memory blocks in chips. “Modern chips are a miracle of technology and economics, with billions of transistors laid out and interconnected on a piece of silicon the size of a fingernail. Each chip can contain tens of millions of logic gates, called standard cells, along with thousands of memory blocks, known as macro blocks, or macros. The cells and macro blocks are interconnected by tens of kilometres of wiring to achieve the designed functionality.” Notably, AI seems to prefer placing memory blocks in sequence next to each other, a tactic that became unpopular with chip designers decades ago.

Beat It Mr. Tambourine Man: Record Labels are Glorified Banks
The following is an exchange with artist Mavi from a 2019 interview:
Interviewer: Is that how you think about entering into a record deal, as taking out a loan with some label?
Mavi: I think that’s literally what it is, unless I got it confused. Unless there’s some misunderstanding.
Interviewer: Not everyone would conceive of it that way.
Mavi: Well. [Laughs] It’s not funny that they don’t see that.

People mostly listen to music they first heard when they were teenagers. While one's listening selections sometimes expand later in life, music from this era of youth is so foundational that it has to be included in the catalog of any successful music streaming service. That means streaming services need licensing rights for the last ~70 years of recorded music at any given time to cover all of their customers. A streaming music service could aggressively sign every new artist direct today, and, in a couple decades (if they survive that long), their foresight might start to positively impact margins. That’s because, for the past 70+ years, a small number of music labels have controlled the vast majority of popular music and will likely continue to do so for the next few decades. (That said, clearly some kids today are forming lifelong listening relationships with independent, label-free artists on TikTok and social media.) In some cases, those labels own songs outright (e.g., Universal recently purchased Dylan's catalog for $300M, and Sony acquired Michael Jackson’s collection in 2016, when it was valued at $1.5B); note: these valuations are for publishing rights exclusive of recording rights). There is some information in those two numbers: Dylan just turned 80, and, even though the famous singer-songwriter has a Nobel Prize in poetry, the majority of youths who experienced Dylan’s 1960’s heyday will be gone from planet Earth in 20 years. Jackson would be 62 if he were still alive, and the bulk of his fans who were teens during his 1980’s zenith are only in their 50s today. That 20 year difference (and the fact that Jackson is more famous globally) explains a lot of the value difference between the two catalogs. These music catalogs are cash streams with highly predictable decays to what is ultimately a very low future value.

Music labels are essentially specialized banks that lend to artists based on their future earnings potential and pay small dividends over time against the “deposit” of recorded music. Despite having historically spent a lot on A&R, physical media distribution, radio promotion, etc., I conceptualize labels the same way as Mavi: existing primarily to fund artist lifestyles ahead of their future earnings power. In the world of digital distribution and streaming, there's a lot less overhead, and labels remain mostly just specialized banks for musicians. Currently, the “spread” for lending against music is unfavorable compared to the guaranteed payments artists can get for live touring; however, this wasn’t always the case. Before Bob Sillerman consolidated the live promotion industry with SFX Entertainment in the late 1990s (now known as Live Nation), bands would take only around two-thirds of ticket sales and ancillaries (beer sales, etc.). But, in order to secure tours, Sillerman shifted the economics to upwards of 90% for the performers. This touring boon was a lifesaver at a time when pirated mp3s were destroying album sales, and it made earnings from recorded music less important to many touring artists.

Today, artists have the option of skipping labels and instead funding their lives by going direct to fans with a variety of new experiences (e.g., streamed events, merchandise, fan clubs, direct messaging, etc.). This was the motivation behind Square's acquisition of Tidal, as Jack Dorsey described it last month at the JP Morgan conference: "A lot of artists today think about building themselves as a business in order to fund their art and fund their work...the streaming market is saturated, but artist tools is not, and that's where the real opportunity is, is to give artists better tools with which to grow their fan bases and better their craft." This trend doesn't just apply to musicians. As DeFi takes off on blockchain technologies the role of a traditional bank or specialized lender evaporates. Coming back to music, touring is still lucrative as well, as artists can leverage their direct relationships to fill seats. And, eventually, streaming will have billions of paying subscribers (via direct, ad-supported, and/or loss-leader services paid for by Amazon, Google, or Apple in the West), and pennies will hopefully add up to dollars for bands. Labels, as the dominant “lenders”, will make the most money off streaming. However, in our NZS investing framework, music labels are a relatively unattractive business, being either win-lose or zero-sum (as with many traditional lending businesses from the 1900s). As a result, even as streaming grows, artists will need to continue to nurture direct channels for monetization. Barring regulatory action and/or new deals between artists, digital distribution, and streaming that are more win-win, labels should start to see revenues decline within 20-30 years as catalog listening dies off with the listeners. As with Dylan, Elvis – and even the Beatles – will likely be dropped from the popular lexicon in a few decades – just ask any 13-year-old if you don't believe me! To be sure, their music will still be appreciated, studied, and licensed for period movies, but it won't be generating much revenue. However, as I noted above, as long as anyone is alive who grew up with artists controlled by labels – which should be another 40+ years since us Gen Xers and the Millennials have emotional attachments largely to label-based artists – streaming services will need those deals to survive. However, if labels want to live on beyond just leveraging their position as lenders to bands, they'll need to create more win-win for today's rising stars.

Christmas Comes Early for Internet Ad Platforms
Apple had a series of privacy-related product announcements at its WWDC last week, adding to the slew of new privacy features in iOS 14.5. I expect many of these will find their way into Android as well (with some subtle differences). For the moment, there are several loopholes that Apple has left open, and, according to the FT, people are still being tracked just as much as before. I expect these loopholes will eventually be closed, and the end result of increased privacy mechanisms will be a lucrative gift from Apple to the small number of very large companies that have proprietary data on users. Currently in the US, Google, Facebook, and Amazon control around 65% of the online ad industry (note: the estimates vary, with some outlets, like GroupM, putting these three as high as 90%, but that seems unlikely to me). I expect that share percentage will trend much higher with the industry’s new privacy push (which extends to web browsers on desktops as well). Even though the big three might lose some access to user behavior across apps and devices, their smaller competition will have access to far less data over time on a relative basis. Ad-supported streaming video apps and other owners of customer data, like Twitter and Snapchat, should gain share of ad budget as well. The short-term impacts are hard to predict as return-on-ad spend could drop without the data. Many popular apps that depend on ads, like mobile games, could suffer in the transition. There are lots of puts and takes here as businesses like Google’s DoubleClick and/or Facebook’s Audience Network, which rely on serving ads across other sites, could become less effective. As we discussed in our tech regulation whitepapers, centralizing data with a small number of large platforms is not necessarily bad as long as users have control and transparency.

Tangled Up in Red Tape
Anyone else getting the sense that Zuckerberg may follow in the footsteps of Bezos, Brin, and Page and step aside from running the giant social network, as the founder’s time is increasingly taken up by regulatory inquiries around the world? Zuckerberg will continue working remotely for half his time, longtime product chief Chris Cox returned to Facebook last year (after he unexpectedly quit in 2019), and COO Sheryl Sandberg has created a newly expanded role of chief business officer, to be filled by Marnie Lavine, following the departure of the company’s chief revenue officer earlier this year.

Miscellaneous Stuff
Plotting Pachyderm Practices
The elephant ethogram is a repository of video examples of all known behavior for the long-snouted behemoths. It encompasses 404 behaviors in 23 contexts and 109 behavioral constellations. For example, the Bonding-Ceremony constellation is defined as: “An exuberant display of behavior involving a constellation of vocal, chemical, tactile and visual communication that may occur, for example, during a greeting, birth, mating, kidnapping, rescue, arrival of a musth male, a coalition, or when a group of elephants have successfully routed an adversary. The term Bonding-Ceremony is a general term that includes more specific behavioral constellations such as Coalition, End-Zone-Dance, High-Fiving, Female-Chorus, Greeting-Ceremony, Mating Pandemonium. The behaviors appear to function to reinforce bonds and pull family and bond group members together for collective action.” You can also read more about the project in the NYT.

3D Synaptic Mapping
Google and Harvard researchers have a new 3D map of part of the human brain that includes 50,000 cells and 130M synaptic connections. The 1.4 petabyte image covers just one cubic millimeter of brain tissue (one millionth of a typical 1200 cc brain!) and was created by ML reassembly of 30nm-thick slices imaged by electron microscopy. Scientists anticipate the image will take years to analyze. One noted finding: “Normally, when a tendril from one neuron passed close to another, it would form just one synapse, or more rarely two to four. But there were also some tendrils that formed up to 20 synapses onto one target neuron, meaning this tendril by itself would probably be able to trigger that neuron to fire. It isn’t clear why, but [lead researcher] Lichtman speculates that the multi-synapse connections underlie learned behaviours. ‘There’s lots of things your brain does by cognition, by thinking and puzzling it out and making a decision, and there are many things you do automatically that could not have come genetically,’ he says, such as braking when you see a red light. The super-strong connections would allow a message to pass swiftly through the network.”

Quantum Sensors >> Quantum Computing
Here’s a nice 10-minute video explaining the theory behind quantum computing and why it’s unlikely to be useful for anything except physics simulations (Feynman’s original application when he conceived the idea). The main issue is that the error correction algorithms must presuppose what the answer might be...so why bother asking a question to which you already know the answer? Despite the limited use cases for quantum computing, the concept of quantum entanglement continues to see new applications in communication and, most recently, imaging. For example, a quantum microscope is able to detail cellular components in ways inaccessible by traditional light-based microscopy due to the latter’s reliance on higher energy light waves that can damage the subject. The entanglement-based sensor, developed at the University of Queensland, “...was achieved by using an optical nanofiber in a dark-field illumination configuration combined with a quantum optics technique named heterodyne detection. We demonstrated state-of-the-art sensitivity using only a tiny fraction of power compared to other sensors (four orders of magnitude reduction in optical intensity), and thereby greatly reduces photodamage dealt by detection. Our method enables, for the first time, quantum noise-limited tracking of single biomolecules as small as 3.5 nm, and monitoring of surface–molecule interactions over extended periods. We aim to use this sensor to uncover biophysical phenomena never directly observed before, such as the rotational steps of single motor molecules. Moreover, our sensing technique can be used for the development of new rapid detection platform for medical diagnostics, such as early stage cancer detection.”

Space-Aged Vino
After fourteen months in space, a case of red wine came back to Earth in the SpaceX Dragon capsule. The time aboard the ISS seemed to do the wines some good, which could open up a whole new industry for zero-g wine cellars.😏 As a research bonus, one of the space-aged bottles will be auctioned at Christie’s, where it is expected to fetch a record-setting $1M. I wonder what potentially groundbreaking experiments were bumped to make room for this stunt?

Stuff about Geopolitics, Economics, and the Finance Industry
Systems Wisdom
Systems thinking is the study of how parts of a system are all interrelated and how outcomes arise from those relations. This brief essay from Russell Ackoff on systems thinking contains some devastatingly sharp observations about how organizations fail to function and how reframing the problem can help. Here are a few excerpts: 1) “The healthcare system of the United States is not a healthcare system; it is a sickness and disability-care system.” 2) “The educational system is not dedicated to produce learning by students, but teaching by teachers—and teaching is a major obstruction to learning.” 3) “Identifying and defining the ways we can control the future: vertical integration, horizontal integration, cooperation, incentives, and responsiveness.” And, 4) “All learning ultimately derives from mistakes...Since mistakes are a no-no in most corporations, and the only mistakes identified and measured are ones involving doing something that should not have been done, the best strategy for managers is to do as little as possible. No wonder managerial paralysis prevails in American organizations.”

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

SITALWeek #299

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, time travel, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: tapping the deflationary power of idle processors; vertically-integrated home cooks; time travel; the tensions of evolving crypto currencies for DeFi; sensors to avoid pedestrian and cycling accidents; a smoother universe; and lots more below...

Stuff about Innovation and Technology
Collision Avoidance Bicycle Tech
A bike equipped with around $500 worth of sensors aims to decrease the ~49,000 injuries and ~900 deaths that occur every year from car-bike collisions. The system, which only works in good weather due to the reliance on lidar, can detect the most common dangerous accidents from up to 30 meters away and sound a horn to alert drivers of the impending crash. At this point, the University of Minnesota engineers that developed the system are looking for a partner to license and productize the invention. More broadly, you could see this reverse detection technology useful in other applications, perhaps in a backpack for pedestrians or even in cars to honk at older cars that aren’t equipped with automatic braking or other ADAS features. If you are parked on the side of a road or at a light and a car is coming up fast, why not use the existing sensors to warn the oncoming vehicles with a loud honk? Eventually, augmented reality glasses with sensor arrays could help avoid all sorts of bumps, bruises, and accidents.

Ambient Processing
There’s a lot of latent, unused computer processing cycles out there. The server market is around 12M units a year, and, with the average server lasting ~3-5 years at high utilization, there’s probably ~50M servers running globally. That’s a relatively small number compared to the billions of active PCs and laptops, which have less processing power, but tend to be used at most for a third of the day (and, on average, probably less than that). There have been projects in the past that have tapped into this network of bored processors, such as the SETI@home project, which analyzed signals from space (and ended in 2020 after running for two decades), or the ongoing Folding@home for simulating protein dynamics. A lot of gamers fund their passion by using their powerful GPUs to mine cryptocurrency when they aren’t slaying zombies or the like. Last week, antivirus company NortonLifeLock announced that their Norton 360 software will mine Ethereum if users want to take advantage of their excess compute power. The main hitch is the high cost of electricity required for mining; but, even if you can make pennies a day in excess of your electricity costs, it’s going to add up, especially if you multiply that across many processors. Let’s expand this concept beyond laptops and think about all the smart IoT devices out there, like my Camp Chef pellet grill. It’s WiFi connected with a microcontroller and sits there 22-23 hours a day doing nothing (unless it’s time for pulled pork or brisket). Maybe a network of microcontrollers across thermostats, cameras, grills, toasters, etc. could be set up to mine cryptocurrency, fold proteins, or look for aliens in the background 24/7. If more cryptocurrencies move from proof-of-work to the much lighter proof-of-stake carbon footprint (see the end of this week’s note for more on that topic), then background mining would become less of a money maker. However, today, such a considerable excess of machine learning (and other) workloads abound that we can’t even make enough chips to meet demand. An edge mesh of unused processors around the house could become a powerful resource. The broader point here is that utilization of technology can (and almost certainly will) trend higher, expanding the deflationary tailwinds as the world goes digital.

Tomorrow’s Brewing Storm
Twitter is launching a local weather service called “Tomorrow” for $10/mo in fifteen cities in the US. Tomorrow has the lofty – and frankly confusing – mission “to share the joy of being alive”. I haven’t tested out Tomorrow, but I tend to see problems ensue whenever platforms become confused about whether they should also be a publisher that competes with their core content creators (which they should never do!). What are the local weather forecasters, who have worked hard to build up a meaningful local following on Twitter in these markets, thinking? What about other areas of media or content creation – are those creators now worrying Twitter might be coming for them? Maybe this move is a proof-of-concept for Twitter’s new subscription ambitions, but if it’s a broader effort to become a media business, I am skeptical.

Shef’s Solution
Shef is a platform for people to sell home-cooked food. Participants, on average, make $40 an hour compared to the typical restaurant line-cook wage of $13-15. Many states limit the ability to sell food that is not made in a commercially regulated kitchen, but there are bills in the works in 29 states to put homes on more equal footing with businesses. Shef requires food-handling certifications for its chefs. In an economy where restaurants are struggling to attract workers with low wages and no benefits, Shef has a waitlist of 12,000 people who want to cook on the platform. As noted in 2019’s The Evolution of the Meal, the solution for home-delivered food is likely going to require vertical integration, subscriptions, and pre-set delivery routes. It seems like Shef could solve for most of these challenges.

A Feather in Instacart’s Cap
Instacart appears to be contemplating pulling the rip cord to escape its Catch-22 business model. Bloomberg reports the company is considering a major shift away from sending gig-workers to shop at grocery chains and instead begin building its own automated fulfillment centers. As I wrote in #249: “Instacart faces a classic marketplace vs. vertical integration dilemma. The company currently delivers items from grocery stores and other retailers. Ultimately, however, having a delivery middleman adds to the costs, and someone has to foot the bill besides VCs. So, unless consumers are willing to pay more, or unless we see a deeper subsidization of delivery costs from retailers and brands shifting promotion dollars (which would also hurt margins at those same grocery stores Instacart relies on), it’s not a viable long-term model. Instacart could instead begin building their own, tailor-made local grocery fulfillment centers and vertically integrate, but that would surely run off their current grocery store partners. It’s a classic business model Catch-22 without a clear resolution.” The potential Instacart strategy shift is also another sign that technology combined with vertical integration will help offset the inflationary pressures of a structurally lower labor pool. If, and this is a big IF, someone can scale a profitable local delivery business leveraging grocery with purpose-built, centralized, vertically-integrated fulfillment and logistics, they could become one of the only challengers to Amazon long term. Right now, there are no contenders who meet these requirements with any significant scale. For Instacart, this would be an existential pivot – if they were to rapidly lose their brick-and-mortar legacy grocery partners before they can scale up, then it's a black eye they are unlikely to recover from.

Miscellaneous Stuff
Inconsistent Dark Matter Consistency
Dark matter and dark energy are thought to account for 95% of the mass-energy in the Universe. General relativity predicts that dark matter should be lumpy; but, increasingly, results from cosmological observations – such as the Dark Energy Survey (which looked at one quarter of the southern hemisphere of the sky from Earth, encompassing 226M galaxies) – suggest it is surprisingly smoothly distributed. There is still much we don’t know, since we cannot observe dark matter directly, but, if other explanations can’t be found, then perhaps some revisions to general relativity might be in order. This would be truly surprising given how well tested relativity is, but clearly there are puzzle pieces about the universe we are still looking for.

What’s Your Favorite Time Travel Movie?
I am (re)watching time travel flicks as I work on a paper about time travel themes and how they relate to investing and decision making. I’ve grouped them into a few categories, like: time traveling teams, unintended consequences, slowing down or speeding up time, the devastating consequences of general relativity, time loops, the mental fog of time shifting, changing destiny, and regret remediation (which never works – see unintended consequences!). Some of my favorites in no particular order: Time Trap, Primer, Time Freak, Time Lapse, Project Almanac, Frequently Asked Questions About Time Travel, 12 Monkeys, Donnie Darko, Timecrimes, Your Name, Interstellar, Flight of the Navigator, The Map of Tiny Perfect Things, Midnight in Paris, Source Code, Groundhog Day, The Endless, and, of course, the classic Bill & Ted and Back to the Future trilogies. If you have any favorites time-related flicks, reply back to this email and let me know. And, speaking of time travel, a new US government report on UFO sightings concludes the crafts are not alien, but also not from any known Earthly origins. So, it seems clear these unidentified flying objects have been sent back by humans from the future, right? 😏

Stuff about Geopolitics, Economics, and the Finance Industry
Evolving Ethereum
I am a longtime interested blockchain observer, always trying to understand the potential for new technologies. Ethereum is a lead contender for decentralized financial services on the blockchain, referred to as DeFi. For example, you can start your own DeFi bank as Marc Rubinstein's recently chronicled in his Net Interest newsletter. It's seems obvious, but it's worth stating that DeFi is fascinating because the assets are decentralized. Instead of a small number of banks with large balance sheets, you have a large number of individuals with relatively smaller holdings. There are some big changes coming to Ethereum, and Vitalik Buterin, inventor and co-founder of Ethereum, was on Lex Fridman’s podcast to explain it all last week. If you want the condensed version: the theory is that forthcoming Ethereum changes should eliminate most of the network’s carbon footprint and dramatically increase the frequency of transactions, potentially enabling them to handle more routine, daily transactions like a credit card or online payment network. But, it’s a complex system and any potential forking of the protocol could produce unexpected outcomes. Below is a longer description from the NZS team of the changes and tensions that might arise as Ethereum evolves.

There are two upcoming changes to the Ethereum protocol that may profoundly change the network itself and its infrastructure support layer. The first is EIP-1559, which is a protocol update expected in mid-July. To transact on the Ethereum network, users have to pay a “gas” fee (currently running around $8) to make a change to the Ethereum blockchain. Currently, 100% of gas fees are redistributed to the Ethereum miners who write the transactions to the blockchain via proof-of-work (PoW) protocol. After EIP-1559, the system will shift to roughly 30% of gas fees being distributed to miners, with the other 70% being “burned”, or removed from the network. Thus, we are on the verge of seeing two knock-on effects that could limit Ethereum's supply: less distribution of gas to miners (which will provide less incentive to mine for ETH awards), and removal (“burn”) of ETH from the network. The latter driver could end up looking like a share buyback and will potentially start to reduce the growth of ETH in circulation (as was explained on this episode of the Hidden Forces podcast). Buterin explained on Lex’s podcast that currently 4% of the total ETH supply goes to miners every year. July's slated mining disincentives, combined with the long awaited shift away from mining to proof-of-stake (PoS), should see new issuances drop from 4.7M ETH a year to between 500k-1M (on a current base of 115M).

The migration from PoW to PoS, the second upcoming protocol change, is expected in early 2022 and will transition the burden of validating transactions in the Ethereum blockchain off power-hungry GPUs. Instead of miners using high-powered, expensive hardware, transactions will be added to the blockchain by ETH-holding “validators” who will have to “stake” their tokens to ensure good behavior (i.e., if they attempt to attack or subvert the blockchain, they risk losing their staked ETH), with creation of new blocks occurring via a relatively straightforward mechanism that can be performed on standard equipment. (And, the relative ease of PoS validation is more aligned with the reduced ETH awards imposed by EIP-1559). PoS will also enable new “sharding” and “rollup” protocols to increase transactions per second from 30 to 100,000. Another way to think about this effort to increase scalability is layer one and layer two: in layer one, Ethereum is trying to make the blockchain more capable of processing a higher frequency of transactions, while in layer two, new protocols can sit on top of the blockchain to accomplish a variety of transactions. This full combination of new features for Eth2 might not be complete until late 2022.

With the move off GPUs, the Ethereum network will also dramatically reduce its carbon footprint. This post on the Ethereum Blog argues that the energy usage from Ethereum will be cut 99.95% after the shift to PoS, and the entire network will use a similar amount of electricity as a small town (~2100 homes). The shift to PoS will put Ethereum in stark contrast to Bitcoin, which also relies on a PoW construct. Globally, Bitcoin mining uses a similar amount of electricity as a small country.

A byproduct of these two changes to the Ethereum protocol should be some relief for frustrated gamers, who have been largely kept out of the market because of demand for GPUs for ETH mining. Gaming GPUs have been selling for multiples of MSRP through third parties for most of this year. However, if the miners were to successfully fork the currency (and thus keep PoW alive) as CoreWeave’s CTO recently commented in this Odd Lots podcast, then demand for GPUs could remain high. Given the massive investment around the world in mining and the wave of DeFi startups, it will be interesting to see the tensions play out between miners and entrepreneurs as protocols like Ethereum evolve.

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

SITALWeek #298

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, Alice, Bob, and Charlie, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: VR makes time fly; social media’s censoring of the marketplace of ideas; learning language models; quantum networks arrive before quantum computing; zero-trust adoption is exploding; leaf-biting bees; giant tortoises; population declines; and lots more below...

Stuff about Innovation and Technology
Every Company is a Software Company
Speaking at their Build developer conference last week, Microsoft’s Satya Nadella noted that traditional companies now hire more software programmers than technology companies: “It’s not about the West Coast of the U.S. or the East Coast of China, but pretty much every company in the world, in every sector”.

Time Flies in VR
Virtual reality causes us to experience time compression – time passing more quickly than we think. A recent study comparing VR vs. on-screen gaming (with a simple maze task) showed time moving about 28% faster in VR. The perception discrepancy might be due to less bodily awareness when we have a more tangible connection to a virtual avatar than our physical body, thus dampening physical signals of time progression (e.g., heart rate). If this phenomenon holds for other VR activities, then VR meetings should be a vastly more pleasant experience compared to Zoom fatigue’s induced time dilation.

Affordable EVs
Lithium ion battery prices dropped 30x between 1991 and 2018, and they are expected to imminently cross under the $100 per kilowatt-hour threshold, which would put EV energy costs at parity with gasoline engines (and battery costs won’t stop dropping there!).

Language Models Without Transcribed Audio
Wav2vec-U is a new language learning model from Facebook that does not require any transcribed audio. Instead, the model takes unannotated audio recordings and uncorrelated text and learns on its own. This is important because many languages lack a large enough tagged speech database for training. And, it’s an important step toward the type of advanced, audio-only universal translator we will need when we meet the aliens 👽 the US government is eager to tell us exist.

Ephemeral Golden Era of Dubbing
With an increasing effort to make locally-produced video content available around the globe, it’s a golden era for actors who dub films into other languages. But, we’re typically left with a slightly disjointed feeling since the words aren’t synced up with actors’ lip movements. Subtitles are of course an option, but they make for rather tedious viewing. In order to provide a more seamless, native-language-like experience, there’s a new deepfake AI tech that can change the actors’ lip movements to match the dubbing (see the video in this Wired article). But, how long will it be before neural nets can dub directly from generic recordings of an actor’s voice, translating both words and emotions with high fidelity? The golden era for dubbers may be coming to an end soon.

Alice, Bob, and Charlie: 3-Node Entangled Network
Researchers in the Netherlands have created the first entanglement-based quantum network of three nodes. By verifying successful information conveyance between the three nodes (Alice, Bob, and Charlie – physicists’ favorite names for all quantum experiments/thought exercises), this advance sets the groundwork for more powerful, multi-node quantum networks. The trick is that Bob sits in the middle of the network and stores a copy of Alice’s qubit (which can be 0 and 1 at the same time, compared to traditional bits that are either 0 or 1), which allows Bob to entangle that qubit with Charlie, thereby entangling Alice and Charlie. Entanglement, or “spooky action at a distance” as Einstein called it, is a little hard to wrap your brain around – there is a short video in the article that shows visually what’s happening. When you see the lines connecting Alice, Bob, and Charlie in the video, just know that in quantum entanglement you don’t need an actual physical connection – once entangled, changes in state are transmitted instantaneously regardless of the intervening distance. It’s likely we will see the benefits of quantum networks long before we see the benefits of quantum computing (which may never come to fruition).

Fully Autonomous Decades Away
Around six years ago, I had frequent conversations with autonomous driving leaders who were quite confident that we’d have fully-autonomous (level 5) vehicles before 2020. Some of those same people are now projecting this achievement is decades away. One of the fundamental problems I see with autonomous driving reaching maturity is that driving involves taking risks. Can we ethically program an AI to take risks? If all vehicles were autonomous and communicated with each other, then there would effectively be no risk. But, unless we are going to mandate a wholesale shift to autonomous, it’s going to be a while before we can eliminate human driver error. An aftermarket sensor package seems an unlikely solution, and replacing vehicles before they’ve reached the end of their lifetime would have a costly environmental impact. This slow churn to autonomous affords more opportunity for incumbent car companies to catch up to autonomous leaders like Waymo and Tesla. It would be interesting for a country to set a deadline for all cars to have interoperable autonomous capabilities. Alternatively, governments could start subsidizing autonomous sensors and processors in all new vehicles, which should assure near-complete inter-vehicle communication within 10-20 years. Low-speed autonomous delivery vehicles, like Nuro, that can operate more like a bicycle than a car still seem relatively safe for real-world operation.

Fed’s Going Zero Trust
The Federal government has a new mandate to move to zero-trust security for its agencies and any companies with which it conducts business. This sweeping modernization of legacy IT systems is similar to Microsoft’s intentions to drop their corporate networks and go zero trust (discussed last Sunday in more detail). Further, Cloudflare’s CEO Matthew Prince, speaking at the JP Morgan conference last week, said: “the Biden administration's executive order saying that if you're doing business with the federal government, you have to adopt a zero trust approach to security. And reading it was like reading the Cloudflare product catalog...And I think that, that will very quickly start to get people to say, the old approach of just buying a whole bunch of boxes and sticking them in an IT closet somewhere, that doesn't work anymore because here's a document that says it doesn't.” And, Okta’s CEO Todd McKinnon had this to say on the company’s earnings call last week: “I was meeting with the Chief Security Officer at a very well-known 3-letter agency....And basically, what they were saying is it sounded like -- and literally, a marketing script that Okta would say. They said we were a victim of SolarWinds. They're worried about these other attacks, these exchange leaks, these exchange attacks -- these exchange attacks, etc. We have to go to Zero Trust, and identity is at the core of it all.” When an organization transitions to zero trust, instead of relying on outdated perimeter security like firewalls, it’s assumed the bad guys can somehow gain access, so the focus is shifted to limiting their ability to move around and wreak havoc. And, access security is improved through smarter identity tools and endpoint security. Last I saw, enterprise IT security spending was $150-200B per year, which seems to largely go to waste. Likely, a fraction of that budget could be repurposed with much better results.

Social Media Thwarts Search for Truth
The increased calls to examine the origin of the virus that caused the pandemic has put social media censorship in the spotlight for silencing the lab-leak theories early on. At this point, I don’t think tracking down viral origins will have any benefit for ending the current pandemic; but, the knowledge could have been helpful at the onset and could provide a basis for preventative measures. It’s interesting how the conspiracy to quiet the lab-leak hypothesis was stronger than the lab leak conspiracy theory itself. An author I like, Nicholson Baker, wrote an excellent piece in left-leaning New York Magazine back in January titled: The Lab-Leak Hypothesis with the subheading: “For decades, scientists have been hot-wiring viruses in hopes of preventing a pandemic, not causing one. But what if…?” I thought the essay was well written and seemed to be well researched, and it certainly opened my mind. Facebook initially banned posts suggesting the virus leaked from a lab but is now allowing them. A recent article, also in New York Magazine, points out how the circular reference of liberal journalists and scientists on Twitter created a backdrop where the origin couldn’t be seriously probed a year ago. Back in the early days of the pandemic, we referenced (#237) a Nature Medicine article verifying a natural origin of the virus; however, it was later revealed that Nature had suspect ties to China (#240). Now it seems entirely plausible that article we referenced in #237 was a plant orchestrated by Beijing. Back then, it seemed China was doing quite a bit of grassroots deflection by injecting fake news stories into local and social media, but the apparent ease with which they might have co-opted one of the world's most respected scientific publishers is disheartening. If knowing the truth about the origins of the virus would have helped slow or stop the pandemic sooner, then we clearly have an issue here of uneven suppression/elevation in the marketplace of ideas potentially causing significant harm. It seems like, if an idea is new, it should be neither quashed nor amplified (e.g., by algorithms designed to maximize Mark Zuckerberg’s checking account balance) prior to proper vetting. Rather, it should be given room to breathe while the experts (specifically not those in the CCP’s pockets) chew on the data. If an idea has long been disproven, that’s an easier call; but, even then, we should allow new evidence to be evaluated. I don’t have any answers here, but the renewed origins debate is an important spotlight on the risks of social media censorship, and I hope something can be learned from it.

Nitty Gritty of Nanosheets
If you get excited about whether 2nm/3nm chip production will use nanosheets or finFETs, then this overview of the challenges and paths to higher performance chips from Semi Engineering is for you! “A nanosheet FET is an evolutionary step from a finFET. In a nanosheet, a fin from a finFET is placed on its side and is then divided into separate horizontal pieces. Each piece or sheet makes up the channels. The first nanosheet FET will likely have 3 or so sheets. A gate wraps around all of the sheets or channel. Nanosheets implement a gate on four sides of the structure, enabling more control of the current than finFETs.”

Illuminating Real Estate Trends
Redfin CEO Glenn Kelman has a great string of tweets on the oddities of the current housing market, including the notion that dual income households are moving to lower cost areas and becoming single income households, one of many trends exacerbating the undersupply of labor for open jobs.

Miscellaneous Stuff
Jazzing Up Electron Orbitals
The traditional representation of electrons orbiting a nucleus that we all have seen in high school textbooks has always been at best a really misleading model. It’s not even a simplification, it’s just not the way the wave function works. I was excited to see Minute Physics post on YouTube some very cool conceptual representations of the wave function for probabilities of different electron states and characteristics. These new visuals are also not perfect because electrons (and their probability distributions) don’t act like little balls occupying discrete regions of space; rather, the wave function for the electrons is everywhere all at once with varying probabilities (just ask Dr. Heisenberg). That said, Minute Physics figured out a great way to render inspiring, dynamic visual representations of wave functions.

Plant-Biting Bees
Scientists were recently surprised to discover that bumblebees bite leaves of flowering plants in a way that causes them to flower sooner. This behavior is seen when pollen is in short supply. Researchers attempted to mimic the bee-induced damage with forceps and a razor, which resulted in a modest shift in flower production that was much less dramatic than that induced by authentic bee bites (probably due to a specific biochemical signaling from the bees). If we can figure out the exact mechanism/active agent(s), perhaps we could harness the technique to increase agricultural production.

“Extinct” Tortoise Rediscovered
The last time anyone saw a Fernandina giant tortoise, native to the Galápagos, was in 1906. The species was thought to be extinct until recently, when biologists located a 100+ year-old female roaming the rather inhospitable island of Fernandina (an active shield volcano). Her species was confirmed with genetic testing. Scat and prints indicate additional tortoises on the island, and an expedition will be launched with the hope of securing more Fernandinas for a breeding program. There are twelve living Galápagos giant tortoise species (galápago is a Spanish word for tortoise) and the largest can grow to over 800 pounds and 6 feet long, living for well over 100 years. Darwin, who referenced the tortoises as an example of species divergence, would apparently go for rides on the creatures: “I frequently got on their backs, and then giving a few raps on the hinder part of their shells, they would rise up and walk away; but I found it very difficult to keep my balance.”

Convoluted mRNA Patent Chains
Nature Biotechnology printed a look at the complicated patent chain for various elements of mRNA vaccines. Of particular note is the critical lipid nanoparticle (LNP) that delivers the mRNA to cells before it degrades. The LNP patent traces back to a company called Acuitas, which has a license from Arbutus, which has a license from the University of British Columbia. Moderna is currently trying to challenge the validity of Arbutus’ US patents after a 2018 settlement (in their favor) with Arbutus via the Canadian legal system. Arbutus has licensed LNPs (via Genevant sublicense) to BioNTech/Pfizer, and Acuitas has sublicensed to CureVac.

Retro Special Effects
If you liked Flight of the Navigator as much as I did when I was eight years old, then you’ll enjoy this deep dive on YouTube into the crazy combination of visual effects used to create all the alien technology.

Stuff about Geopolitics, Economics, and the Finance Industry
Welcome Robots and Immigrants!
The NYT has an article filled with eerie anecdotes about the coming global population decline. According to the article, sometime around mid-century there will be more deaths than births; however, I think even that timeline is optimistically far out. Previously fast-growing populations, like India and Mexico, are no longer above replacement birth levels, and how long will it be before the last growth regions, like Africa, see prosperity and equality that drive down birth rates? When populations decline, it's hard for GDP to grow. What would the world look like if, in ten years, the global population began shrinking? Ponder that if you’re worried about a quarter or two of short-term reopening inflation! I can certainly hear the planet breathing a sigh of relief. I’ve covered this topic a lot in the past, but the main thing I expect to happen is wealthier nations will be paying large bounties to entice immigration to keep their economy growing. Perhaps not coincidentally, according to WaPo, concurrent with the current population growth slowdown, automation growth is accelerating. And, the pandemic has significantly accelerated robot implementation and job automation with software, with the US economy producing the same GDP with 8.2M fewer workers.

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

SITALWeek #297

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, bi-directional Lightning, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: battery-powered trains; trucks that power your house; stale air sensors; TV’s fall lineup isn’t funny; from TelePresence to Starline to AR; Microsoft is going zero trust; ransomware will spur a seachange in enterprise security; NZS partners with Harbor Funds; and lots more below...

Stuff about Innovation and Technology
Electric Choo Choo
BNSF Railway and Wabtec have developed a battery-electric locomotive (BEL) that cut greenhouse gas emissions by 11% in a real-world test. The BEL, with 2.4 megawatt hours of battery storage in 18,000 lithium-ion cells, traversed over 13,000 miles of hilly California terrain between Stockton and Barstow alongside two Wabtec Tier 4 diesel-electric engines. Wabtec, encouraged by the results, is planning a 2nd-generation prototype with six megawatt hours of batteries that could reduce carbon emissions by up to 30%.

Battery-Powered Lightning
Ford debuted the electric F-150 Lightning last week. The truck, which boasts a large frunk where the engine used to be, can also power a house for potentially days due to bi-directional charging. Because EVs tend to last longer and require less service, vehicle sales/service will be a shrinking market as we transition away from ICEs (after a period of incentivized EV sales), and legacy automakers will need to shift business models or evolve to maintain profits. Ford is focused on increasing vertical integration, like insourcing a lot of engineering – including software and autonomous features (for which they used to rely on suppliers) – and adding services like fleet management and vehicle charging for the commercial segment. Ford is also looking at a disruptive per-mile rental business model where people just pay for mileage rather than owning the cars, with potential revenue from app store sales and in-car ads (Ford signed a partnership with Google’s Android automotive operating system as well). As with other industries that undergo the analog-to-digital transition, we are likely to see a very concentrated number of winners in each geographic region and a completely transformed industry. Autos could fall along national lines with heavy incentives to buy patriotically. In general, it’s becoming easier to make EVs, and the industry could quickly look like a traditional auto market – i.e., not a lot of profits to go around. Where will the battle be fought for EV market share: range, autonomous features, charging network, user interface, fleets, government subsidies, and/or form factor?

First Responder Drones
Chula Vista police send out a drone in response to nearly every 911 call. The drones lift off dozens of times each day in the California town to provide a bird’s eye view of the potential emergencies. So far, the drones have flown 5,400 missions and procured evidence for 650 arrests. The drones reportedly show up before police in a quarter of cases, allowing law enforcement to preview the situation, affording more opportunity for de-escalation. The Chula Vista police believe the program has been an enormous success, but it’s likely we will need more data on the effectiveness of drone usage and whether there are situations where the presence of the buzzing machines could make things worse on the ground.

CO2 Sensor Canary
Physicist Lidia Morawska of the Queensland University of Technology believes we should measure air quality with the same frequency and standards we apply to drinking water. The easiest way to know if you are getting proper air movement is simple CO2 sensors, as CO2 accumulation signals stale air. Schools in Germany have been using a red/yellow/green-light system for CO2 measurements to indicate when fresh air supply is needed. As we’ve discussed before, given the consequences of stale air (not just for COVID, but all sorts of problems) there is a need for a revamp of current systems – including more outside air exchange and filtration – which will increase energy burdens.

Linear Snooze Fest
For the first time since the 1950s, the NBC network will not have any sitcoms this fall. Fox has also wiped sitcoms from its lineup. In general, there is a dearth of new shows – only a dozen across the four broadcasters – and some of those are just reboots/reimaginings of older shows. Comedian and ABC late-night host Jimmy Kimmel referred to the lack of new shows as “Disney-minus”. And that’s spot on: the channels are instead focusing their budgets and efforts on originals for their streaming apps as they race to gain subscribers and shift viewers to direct relationships. And, as people are increasingly favoring ad-supported streaming apps (see #287), this direct relationship will drive the data to drive ad rates higher, shifting budgets away from linear TV at an even faster pace and higher ROI. But, as we often lament in SITALWeek, we are left with too many apps and no good way to unify them: we need a rebundler. In the meantime, after stopping for a cup of coffee in the AT&T cafeteria, WarnerMedia is moving on to merge with reality-cooking-show-maker Discovery. This deal will effectively fetter the Warner properties, which have some of the best content the world has ever seen, with the producers of what is arguably the lowest common denominator ambient TV. The deal does not strike me as creating an asset with much more scale in streaming than WarnerMedia had on its own. I’d wager the merger will benefit Netflix, Disney, ViacomCBS, and NBCUniversal on the recruiting front. The next most likely combination would be NBCUniversal and ViacomCBS, which would leave consumers with four primary apps encompassing the majority of the premium content viewed outside of live sports. By buying MGM, Amazon is making an important – but nearly insignificant – move in the larger chess game. It would be compelling to see them target a larger content king like ViacomCBS as well. Fire up the Excel spreadsheets and PowerPoint slides – bankers will be staying busy as this multi-hundred-billion-dollar industry undergoes an Information-Age-driven consolidation.

Prime Diagnostics
Amazon is creating a new home diagnostic testing business for COVID, STDs, and clinical genomics, according to Business Insider. A COVID test kit may come as early as this June’s Prime Day. Amazon developed its own lab testing capabilities for employees during the pandemic, and the same group is launching this external business (a classic Amazon strategy). BI points out that, although this new initiative could still fail to launch, it’s part of Amazon's broader push into healthcare with pharmacy, telehealth, wearables, and other projects.

Starline HoloPortal
I remember my first TelePresence with John Chambers at Cisco in 2008. The high-definition video conference, which required expensive new hardware on both ends of the conversation, aimed to eliminate many of the problems of legacy solutions. I don’t think it was ever much of a commercial success, and, while it was better than what existed, it still felt a little disjointed since you weren’t quite looking people in the eye. Today, of course, we are all expert video conferencers and we put up with a variety of substandard, emotionally draining experiences. Google’s Project Starline aims to create a more realistic interaction. Using a new light field display, which creates a sense of volume and depth without the need for special eyewear, combined with computer vision, AI, and compression technology, Google claims it feels like you are sitting right across from someone and looking them in the eye. Like TelePresence, Starline also requires expensive custom hardware on both sides of the call. Google began developing the system five years ago and has been using it internally. Later this year, they will be deploying it with enterprise partners, but it’s likely years away from becoming a mass-market technology; meanwhile, in that timeframe, we could see breakthroughs in AR achieve similar results with less expensive hardware. Google’s Clay Bavor, who oversaw the development of Starline, said it feels real enough that you remember the interaction as being real and not long distance. Further, he says his recall of the meetings is much better than a typical video conference. For 13 years, our attempts to virtually simulate in-person meetings have met with only mixed results because, the reality is, anything short of reality is, well, not real. And, that matters because we humans aren’t yet ready to make the leap from our biological cell-based existence to a purely electronic one.

Hybrid Work Spurs Zero-Trust Adoption
Microsoft is taking the big step of ditching their corporate networks in favor of zero-trust security. We’ve been writing about zero-trust security and the companies that enable it for a while (see #267), and Microsoft’s milestone will likely pull many of their enterprise customers out of their legacy systems, causing a refocusing of security budgets. Microsoft lacks many of the products in house to offer a robust zero-trust solution to their customers, which suggests they should be on the hunt for acquisition targets or partners. You can read about the change, along with a host of other adaptations related to hybrid work environments, in Microsoft’s The Hybrid Work Paradox on LinkedIn.

Ampere Awareness
Microsoft is working with Ampere to utilize the startup’s Arm-powered server chips. Ampere is an Arm architectural license customer, which means they can craft custom silicon in a similar fashion to what Apple does with its A- and M-series processors. Ampere also boasts Oracle, Cloudflare, Tencent, and ByteDance as partners. This partnership essentially creates a two horse race between Amazon’s captive Graviton Arm server chip and Ampere, as many others have exited the market. However, many of Ampere’s potential customers might also do their own custom Arm processors like Amazon has chosen to do.

Miscellaneous Stuff
That’s a Spicy Photon
The most supercharged photons ever observed – packing 1.4 petaelectronvolts, 100x more energy than what our most powerful atom smasher, the Large Hadron Collider, can impart – were detected as they collided with air molecules in the upper atmosphere, leaving a faint blue afterglow called Cherenkov light. These PeV photons were emitted by ultra-high energy cosmic rays as they shot past Earth at near the speed of light. By inferring trajectory data from the collisions, we can get a sense of where in the universe the cosmic rays originated. The key PeV photons were observed at China’s Large High Altitude Air Shower Observatory (LHAASO), which sits on the Tibetan plateau at 4,410 meters above sea level and consists of 5,000 high-altitude detectors and 1,000 underground muon detectors to filter out background radiation. LHAASO scientists identified around a dozen “cosmic ray factories”, including some usual suspects (e.g., the Crab nebula, home to an ancient supernova) as well as some surprises (e.g., the Cygnus Cocoon, a stellar nursery). While supernovas (explosions of dying stars) were long thought to be the main progenitors of the cosmic rays, this new data suggest that regions of newly forming stars may be an alternate, or even primary, source. It’s hypothesized that winds from newborn giant stars could generate a sufficiently powerful shock wave to boost cosmic rays into the realm of ultra-high energy.

Stuff about Geopolitics, Economics, and the Finance Industry
Democratizing PE Investing
Vanguard will begin offering its private equity fund to accredited individual US investors this summer in a push to make the institutional darling asset class more broadly available. If podcast ads are any sort of reliable harbinger, then there are a variety of startup platforms targeting the democratization of private asset investing (a topic covered in #265, #284, and #281), including Fundrise for real estate and Yieldstreet for multiple asset classes, including real estate, consumer and commercial lending, art, etc. (I don’t know anything about these startups beyond hearing their ads, so this is not an endorsement!).

Insurance Liability Urges Zero-Trust Migration
The WSJ reports that ransomware payments, enabled by Bitcoin, quadrupled in 2020 to $348M. Insurance giant AXA was hit with a ransomware attack shortly after it said it would no longer underwrite ransomware insurance in France. The ironic attack was likely a result of a ransomware technique whereby, once inside a hacked corporate network, the attackers quickly look for a document detailing how much ransomware insurance a company has. This info allows hackers to set the ransom demand right at the policy limit so the payment doesn’t hurt the victim’s bottom line. Cyber insurance provider CNA was also hacked earlier this year as ransomware pirates were looking to obtain a list of companies that have ransomware insurance. CNA paid a $40M ransom to get their data back. Going forward, cyber security insurance could be too expensive to justify, given that companies can just take funds otherwise dedicated to insurance premium payments and instead get better cyber security or move to a cloud/zero-trust security architecture. Escalating costs of ransomware attacks, combined with Microsoft going zero trust (Google has been zero trust for years), suggests security modernization is gathering momentum.

Disruptive Innovation Fund
We are excited to announce that NZS Capital will be partnering with Harbor Funds for their multi-manager Disruptive Innovation Fund later this year. From the prospectus: “The Fund seeks to invest in what it believes to be disruptive and innovative companies of any market capitalization. The Fund defines disruptive and innovative companies as those generating secular growth tied to accelerating shifts in the global economy.”

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

SITALWeek #296

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, double slits, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: grocery stores' refrigerant problems; job fairs on Discord as wages rise; private mesh networks for surveillance and data transfer are multiplying; the difficult odds facing chip startups; new class of drugs targeting the obesity epidemic; will tech bring back company towns; new methods for astronomical imaging; some NZS news; and lots more below...

Stuff about Innovation and Technology
Grocery Needs Green Makeover
The EPA’s new regulations to significantly cut hydrofluorocarbon use by 85% over the next fifteen years would require grocery stores to overhaul their cooled cases. The problem stems from the vast lengths of leaky piping snaking throughout the stores to deliver coolant to a hodgepodge of locations. In total, 55% of stores tested in Washington D.C. had refrigerant leaks, including 60% of Walmart stores. As grocery potentially undergoes a shift toward click-and-collect and/or delivery, it might be easier to just build new, specially-designed cooled warehouses rather than spend to retrofit stores that increasingly may not have as many people walking the aisles staring through glass doors. For example, Picnic in the Netherlands has robotic warehouses with three different temperature zones.

Salesforce Dreaming of Disney
Salesforce founder Marc Benioff is dreaming about the possibility of a Disney-like corporate campus: “What they’ve done so successfully with their parks is you show up at a Disney park and you smell Disney, you see Disney, you feel Disney, you hear Disney. That’s what I want my new employees to feel for Salesforce.” Which raises the very serious question: what does Salesforce smell like? In the WSJ interview, the CEO indicated that Salesforce is looking for a large ranch in the US to build the next Crotonville (referencing the 1950s General Electric campus in New York). For a quicker, greener, and more flexible fix, Gather.town is a virtual space that allows employees to meet and talk. Unlike Zoom or other video conferences that only allow one speaker at a time, Gather works more like the real world where multiple people can talk at once, and you can even hear conversations at a distance (with volume dictated by your avatar's proximity). You can walk your avatar in and out of conversations as you move around. This type of interactive space will likely become natural once VR is more mainstream. The pandemic has raised the question of whether office jobs can evolve into something better – perhaps involving some new hybrid of work and virtual spaces, which will smell like your home office (unless you want your olfactory-modulating hepatic suit to simulate an office breakroom with the hint of microwaved salmon...and there’s a new nasal wearable device that even allows you to smell in stereo).

DarkSide's Bright Side
DarkSide, the hacking group responsible for taking down the Colonial gas pipeline (now restored) apologized for the mix-up and said it has implemented a moderation mechanism to check each company targeted by their ransomware because they reportedly don’t want to create problems for society. DarkSide also claims to donate part of its loot to charities and maintains a help desk and call-in number for its victims. They are not quite the ethical hackers you might find on a platform like HackerOne, but I guess their attempt at morality is better than nothing. Colonial is reported to have paid $5M to DarkSide, but it took so long to decrypt the stolen data that the company was able to get up and running sooner from their own backups.

Discord Job Fairs
After announcing that starting wages will increase to an average of $15/hr, Chipotle is holding the first job fair in Discord. The burrito giant’s Discord server will “feature recruitment content and live sessions with Chipotle employees highlighting its benefits, career paths, cooking demos, and more. Career fair participants will have the opportunity to chat with real Chipotle employees and gain valuable insight into what it's like to work in a Chipotle restaurant.” Discord also recently announced their new Stage Channels for discovering live events on the platform.

Wireless Webs Powered by Crypto
There is a wave of low-power, proprietary wireless mesh networks popping up. Amazon’s Sidewalk network uses Ring and Alexa devices along with other connected objects, like Tile smart tags, to create an ad-hoc network. Apple uses its devices to create a private mesh network to track its new smart tags and find phones. Basically, our devices are increasingly being connected anonymously (hopefully!) to nearby strangers’ devices to enable wide-area surveillance and data transfer. I don’t believe Google has (yet) done the same with Nest and Android, but it seems only a matter of time. In one of the more extreme, forward thinking examples of an ad-hoc mesh network, Helium is a startup that allows everyone with an Internet connection to create a mini 5G cell tower. The company’s base stations create a peer-to-peer network for tracking connected devices like smart scooters or pet collars. The network uses a free, FCC-sanctioned 5G spectrum band called Citizens Broadband Radio Service (CBRS). There are 30,000 points in place today and another 200,000 on order. Helium leverages blockchain technology and distributes its proprietary cryptocurrency, HNT, to people who have deployed the hardware.

Food Delivery's Prospects Hinge on Dine-In Deficit
A new paper from Daniel McCarthy does a deep dive on food delivery purchase data and concludes:
“Our event study and regression analyses both offer mixed inferences about the health of the restaurant delivery category. The former analysis suggests that pre-COVID sales growth trends were weakening significantly and that COVID accounted for the majority of overall growth in 2020, while the latter analysis implies that the decrease in restaurant dine-in was the primary driver of that growth. To the extent that there is a return to restaurant dine-in as part of the recovery from the pandemic, this suggests negative future prospects for the delivery category.”

Cloudflare Cutting CAPTCHAs and Cookies
According to Cloudflare, humans collectively spend 500 years per day proving we are indeed human to CAPTCHAs. The annoying picture games designed to stop bot activity take, on average, 32 seconds to beat. I’ve always felt I was notoriously bad at CAPTCHAs, but I might actually be closer to average, in which case I can only imagine the outliers spending even longer trying to figure out if the pole holding a stoplight is also considered a stoplight. Cloudflare’s solution relies on trusted USB keys like YubiKey (or the virtual equivalent on your phone), which are a little cumbersome but allow people to quickly prove their humanity without relying on culturally-specific knowledge or giving up any personal information. In other Cloudflare news, they recently deprecated a common browser cookie, utilized by the 82% of websites that use their reverse proxy service, which will save 112TB of data transfers per day.

Putting Silicon Back in Silicon Valley
The NYT discusses how silicon is back in Silicon Valley with $12B invested into 407 chip-related startups in 2020, doubling 2019’s tally. Chip design software maker Synopsys keeps tabs on over 200 AI chip startups. If you look at the broader established landscape for leading-edge digital chips to run all types of workloads, including AI, you have: 1) the standard chips from Intel, Nvidia, AMD, and, increasingly, Arm partners; 2) the custom chips built for specific high volume workloads, like the TPU from Google and other rumored chips at the big cloud platforms; and 3) programmable chips like FPGAs. There is a huge existing software and programming ecosystem around x86 and Nvidia, and engineers are building one around Arm in the data center. Google’s cloud software is tuned for its custom silicon. And, all of these existing standard/custom chip designers are innovating at high speeds. It’s not clear what market is left in the data center unless a startup can catch these moving targets, tape out and secure capacity at TSMC (which has no wafers to spare right now, but always smartly works with startups), build a software ecosystem, attract developers, and get customers, all the while spending hundreds of millions of dollars to work on the next chip, which needs to trounce the current chip in performance just to keep up. It seems like a high-degree-of-difficulty dive into a small pool. The dive is probably easier the more you move down and out of the data center into the edge and the IoT. Kevin Krewell of TIRIAS Research commented that there are “too many [AI] startups today than the industry can support long term. I’m sure a few more will pop up with more exotic solutions involving analog or optical. [But] eventually, AI/ML functions will be subsumed into larger SoCs or into chiplet designs.” Contrast a chip startup with a traditional software startup: while by no means a cakewalk, all you need to do is write the software on an existing public cloud to solve a specific customer pain point, and then create a freemium model for distribution. Therefore, what seems more likely is that innovation continues to take place in the software layer on top of the array of compute platforms that exist today. That said, I hope I’m wrong – it’s been far too long since we’ve seen a flourishing of chip startups.

Miscellaneous Stuff
Semaglutide
Scientists are developing a new class of anti-obesity drugs called incretins, like semaglutide from Novo Nordisk, which is up for FDA approval in June to treat obesity as a chronic disease. The apparently safe drug (which mimics the body’s naturally occurring incretin hormones) acts as an effective appetite suppressant, with the average person in the clinical trials losing 15% of their body mass, and one-third of participants losing 20%. Obesity alone is said to account for around 8% of US healthcare costs, and, overall, lifestyle related diseases are thought to be 26% of US healthcare spend. Obesity played a large factor in negative COVID outcomes: countries where less than half of the population was overweight had about one-tenth the death rate (a stat that's obviously influenced by many other factors but is noteworthy nonetheless). Chipping away at obesity with an effective drug could eliminate a huge amount of healthcare spending here in the US.

Exoplanet Imaging via Quantum Interferential Recorders?
Interferometers are used in astronomy to resolve stellar images/data via combined analysis of multiple recordings from different sources. This method of superimposing waves (which can either reinforce as signal or cancel out as noise) allows a series of small telescopes to act as a single big one (e.g., potentially Earth-sized for a series of land-based scopes), thus giving an unprecedented level of resolution. For example, interferometry was used by LIGO to detect gravitational waves and is frequently used in data analysis for radio telescope arrays (and was the basis for how Jodie Foster’s character in the movie adaptation of Carl Sagan’s Contact receives the alien broadcast). Optical interferometry is significantly more difficult than radio because the much smaller optical wavelengths make the signals harder to align. It’s possible to hardwire fiber optic connections between disparate optical scopes to enable signal alignment, but there’s a practical limit (~1km) to the intervening distance, thus limiting resolution. Alternatively, scientists think they could record the interferential quantum states of incoming photons across the array, which would theoretically allow resolution of actual surface details of a distant planet circling another star in the Milky Way. The trick would leverage the notion that photons are both a wave and a particle. If you pass a single photon through a double slit, it creates a wave interference pattern – provided that you don’t attempt to pin down which slit the photon passed through, which would cause the interference pattern to disappear (the gotcha illustrated by the Schrödinger’s Cat paradox). So, if you store the interference pattern of each arriving photon on a quantum hard drive attached to each scope (so you treat each scope like a “slit” – you aren’t checking which scope actually received the photon, just recording the interference pattern from EACH incoming photon across ALL scopes) and then bring those hard drives together, you could, in a meta-analysis sleight-of-hand, superimpose all the single-photon interference patterns to create an image. Piece of cake! Except that quantum hard drives don’t quite exist outside of basic lab prototypes just yet. The ones we have only work over short periods of time for a limited number of wavelengths, but they are being improved upon. One example uses europium nuclei embedded in a crystal. While its quantum record only lasts for six hours, you could fly hard drives between scopes for analysis. An alternate idea would use a quantum Internet, which relies on the entanglement of photons so they can be teleported over long distances. Regardless of how it’s ultimately accomplished, the idea of turning the entire Earth into a double-slit experiment is very cool.

Stuff about Geopolitics, Economics, and the Finance Industry
A Big Thank You from NZS
There was some press coverage last week of the launch of our growth strategy for clients outside the US through our partner Jupiter Asset Management (you can read about the new fund here or in this interview in Nordic-focused AMWatch). I want to take a moment to extend my sincere thanks to the phenomenal NZS Capital and Jupiter teams, as well as our clients, who now entrust us with management of over $1B in assets. We are grateful to have the good fortune to achieve this milestone as a new investment boutique. As always, we continue to work on your behalf to find the adaptable, non-zero-sum winners in the analog-to-digital economic transition, and we look forward to a long and fruitful partnership.

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

SITALWeek #295

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, happy little trees, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: blue collar robots; the unevenness of office returns may force a talent exodus to tech; Amazon locks up AWS technology deals for all of the major streaming apps; Bob Ross; lipid nanoparticles and unstable mRNA; regenerating limbs; getting ready for aliens; births drop as Millennials move into houses; and lots more below...

Stuff about Innovation and Technology
WeldBots Enter Labor Force
Path Robotics is an Ohio-based maker of welding robots. Welding poses unique computer vision challenges due to the reflectivity of the metal and the complex geometry of the assemblages. The system analyzes and autonomously determines the best weld path for optimal outcomes. The US is expected to be short 400,000 human welders by 2024, according to the American Welding Society, and repatriation of manufacturing could further exacerbate that shortage. Smart welding is one of a growing list of robotics and AI implementations designed to curb rising labor shortages of skilled workers (see also the record low birth rate in the US in the last section of this week’s newsletter...we’re going to need more robots in the future).

Freewheeling Robo-Groot
Disney Imagineering’s new autonomous humanoid robot dressed up as Groot is basically a more adorable version of the Boston Dynamics humanoid robots. Robo-Groot and other characters are being developed as autonomous bots to walk around parks and interact with guests. Disney had to design custom actuators and extra degrees of freedom (compared to other bipedal robots in the marketplace) to recreate realistic character movements and emotions, and software engineers teamed up with animators to design character style and movement.

Mandating Office Return Risks Brain Drain
Over 60% of Google employees have returned to offices in locations where they were able to go back to work. Google is also softening its last statements on hybrid work, and now appears to be taking a more flexible approach. The company expects most Googlers to spend three days a week in the office (days will be selected so that teams are in at the same time to collaborate). Overall, the company expects 60% of people in the office part time, 20% moving to different offices of their choice (with compensation adjustments matched to location), and 20% working from home. And, all office-based Googlers will be able to apply to work one month remotely per year. I am encouraged by this flexible approach, and I hope it means Google is learning to be just as productive as they were when everyone was in the office together. Meanwhile, Jamie Dimon would like to let you know he is sick of Zoom and, if you work for JP Morgan Chase, you should plan on getting your butt back in your office chair very soon, presumably so that Jamie can tell you face-to-face how much he hates Zoom. According to Dimon, remote work “does not work for younger people”.🧐 (A recent survey from GitLab suggests that ⅓ of people would quit if remote work was taken away as an option and that remote work comes with increased productivity and decreased bureaucracy.) Wall Street has been bleeding top talent to tech startups and big tech platforms since the 2009 financial crisis, and this inflexibility from banks like JP Morgan and Goldman Sachs is likely to accelerate that brain drain. Every smart kid that Dimon forces to endure a long commute and sit in a fluorescent-lit cubicle who knows their own worth will leave to fuel the wave of fintech startups preparing to turn these legacy, 1800s-era banking artifacts into forgotten, Industrial-Age relics.

Amazon Runs the Table on Video Streaming
Amazon has craftily signed up ViacomCBS, Disney, NBC Universal, and Fox to wide ranging technology deals for AWS. And, WarnerMedia was said to have extended their AWS use agreement as part of negotiations to get HBO Max onto Amazon’s Fire TV devices, according to The Information. (Netflix has always run on AWS.) As the studios shift their business from linear to direct-to-consumer streaming apps, will Amazon, Roku, Apple, Google and/or other distributors end up holding too much power? So far, the studios are getting the direct customer relationships and the data they want, but we can also expect to see more jockeying in the future. I’ve suggested in the past that these deals are all backward – instead of Netflix paying Roku a bounty for subscribers (or ad-supported apps ceding ad slots to Roku), connected TV hardware like Roku should be paying the studios for the privilege of having their apps on the platform. My point being, Roku is pretty useless without any of the big-five studio apps, so the leverage is still with the content owners. Amazon also appears to have a significant advantage over Roku because they can strike better distribution deals in return for AWS contracts, but these types of tit-for-tat deals in the past have raised antitrust scrutiny.

Shopify and Google: Platforms, not Marketplaces
I enjoyed this interview with Harley Finkelstein from Shopify on The Verge decoder podcast. After detailing some company history, he discussed their logistics effort as well as the creative ways small businesses work around the walls that the big platforms like Apple keep putting in their way. Shopify’s business philosophy resonates with how we operate at NZS and is a good example of the adaptability needed to drive the analog-to-digital economic shift: “we’re constantly getting really comfortable with being uncomfortable, that has created an environment for those of us that work at Shopify, whereby we have strong opinions, but they’re weakly held. So, I may come in with this assumption that I know exactly how this experiment’s going to go. And I may say so with conviction, because I think I’ve seen it before, but if you’ve got a better idea or you can challenge me with either data or evidence, I’m going to change my mind fairly quickly. And that’s worked out really well.” Finkelstein also touches on resilience/optionality and their long-term mindset: “in some cases, that we will do something that maybe in the short run is not great for Shopify, but in the long run is great for the merchant. Or in the short run, it’s also great for the merchant, in the long run may eventually be good for Shopify. We can take these long-term bets, because we’re playing this ridiculously long game of a 100-year company.” Related, the head of Google commerce and payments, Bill Ready, was on the Modern Retail podcast recently talking about Google’s new efforts to link shoppers to merchants in search and video.

Boosting Online Impulse Buying
In total, 25-40% of Hershey’s candy bar sales online are impulse buys by people who didn’t intend to purchase them when they started placing an order. Impulse buys are very important in the physical retail world, but risk disappearing as consumers shift to buying groceries online. There is an opportunity to dangle virtual candy bars in front of people, but there is no immediate gratification. Offsetting the trend, when people do make unplanned purchases of things like candy online, it tends to be for larger packages. Bic lighter sales were down 5% due to the pandemic despite cigarette sales being flat. In order to stick their merchandise front and center in an ecommerce purchase, these consumer goods companies are likely going to have to buy an ad or pay for product placement to get strategic visibility. This factor would favor ecommerce platforms like Amazon that already have a very robust and data-driven ad platform filled with tons of data on its customers’ purchasing habits.

Miscellaneous Stuff
Joy of Painting, not Product
Bob Ross is perhaps the most prolific painter of all time, having created ~30,000 nature-inspired paintings over the long course of his artistic and television personality career. Ross, who was a hard driving drill sergeant for 20 years before switching to painting, built (accompanied by pet squirrel sidekick, Peapod) a multi-million dollar brand that still mints money today, 25 years after his passing. As reported by The Hustle, you would be hard pressed to find any Ross originals for sale today because most of them are hanging innocuously in homes of people who long ago bought them for a pittance or are just sitting stacked up at the headquarters of Bob Ross, Inc.: “Ultimately, the real reason there aren’t more Bob Ross paintings up for sale is that the artist never wanted them to be a commodity. For Ross, the value was in the process, not the finished product.”

Finicky mRNA
Following up on last week’s “Making mRNA” piece, here’s a C&EN article on the lipid nanoparticles (LNPs) used to protectively encapsulate the fragile mRNA for delivery to cells. The LNPs used in the Pfizer and Moderna Covid vaccines are comprised of different types of lipids (e.g., chosen to confer stability, cell recognition, and optimal biodegradability), including, importantly, ionizable lipids that are neutral at physiological pH but become positively charged in an acidic environment. Following vaccine injection, the LNPs are recognized by our cell-surface receptors and “engulfed” by cells, with a portion of the cell membrane budding off to form an encapsulating bubble (an endosome) around the LNP. The endosomes naturally become acidic, causing the ionizable lipids to adopt a positive charge. In the body, positively charged lipids can be extremely toxic due to their ability to disrupt cell membranes. In this case, however, the now charged lipids can (it’s believed) alter the LNP structure and disrupt the integrity of the endosome, allowing the mRNA payload to spill out into the cell so that cellular machinery can start cranking out viral proteins. Once their jailbreak task is complete, the ionizable lipids return to neutral and are biodegraded. This neat trick for getting mRNA (as well as DNA and other types of RNA) into cells was decades in the making and still has lots of room for optimization. Indeed, the particular LNP delivery method used for the Covid vaccines was actually designed for targeting the liver rather than provoking an immune response with intramuscular administration. Hopefully, further optimization will lead to more stable, lower-dose drugs/vaccines that could potentially target specific types of cells.

Related, CureVac has been in the news recently for their fridge-stable mRNA Covid vaccine formulation, which is currently in late-stage clinical trials. Without the need for deep-freeze transport/long-term storage, CureVac’s Covid vaccine could more easily reach less developed regions around the globe. According to the article, CureVac is using a more stable form of mRNA for their vaccine (as well as LNP-mediated delivery). Because mRNA is single stranded (rather than a double-stranded “ladder”), it can twist, kink, and form superstructures whose stability is influenced by the specific mRNA nucleotide sequence. Use of engineered nucleotides can also confer stability. Interestingly, CureVac also has at its disposal a proprietary peptide (small protein fragment) that can stabilize mRNA. (Thanks to SITALWeek's editor and in-house PhD Chemist for the mRNA explanations this week, and also happy mother's day!)

Bioelectric Signaling Key to Limb Regeneration?
Apparently, children below the age range of seven to eleven are able to regrow severed fingertips. Developmental biologist Michael Levin believes that, by understanding the bioelectric code used by cells, we might be able to program them to regenerate lost limbs or other structures. Ion channels in cells open and close in response to outside voltage, which can create different behaviors (and constitutes one of the main mechanisms of intercellular communication). However, Levin’s view of bioelectric signaling goes beyond the conventional model that puts genes and proteins in the driver’s seat. For example, by studying electrical patterns in the faces of developing frog embryos using voltage-sensitive dye, a researcher in Levin’s lab was able to recreate those signals to initiate eye growth on other parts of the frog, eventually leading to optic nerves connecting the novel eyes to the brain. The New Yorker reporter who wrote the story on Levin said: “None of the developmental biologists I spoke with expressed any doubt that we would someday be able to regrow human limbs. They disagreed only about how long it would take us to get there, and about how, exactly, regrowth would work.” There seems no doubt that bioelectrical signaling plays a key role in patterning morphogenic development, but the question remains as to whether it actually encodes the blueprints or is just an intermediary means of communication.

From “Swamp Gas” to “Unidentified”
The New Yorker has a long read about the Pentagon's increasingly serious interest in evidence of Alien visitation and UFOs (or at least an increased willingness to acknowledge that “unidentifiable” phenomena do exist). Back in January 2020, I talked about aliens in SITALWeek: “Every week, several paragraphs are cut from SITALWeek to spare you readers from suffering an even longer email, but sometimes I wish I had rescued something from the chopping block. Back on Sept. 19th, 2019 I cut the following: ‘The Navy confirms that punk rockers Blink-182 did in fact release footage of UFOs last year. They probably weren't alien technology, but who knows?’ Well this week, in response to a FOIA request, we got an intriguing update on that UFO phenomenon from the Office of Naval Intelligence: yes, they did have ‘SECRET’ and ‘TOP SECRET’ documents and video pertaining to the UFO encounter in question but ‘...sharing the information with the public “would cause exceptionally grave damage to the National Security of the United States”’.” Ever since the post-WWII heyday of UFO sightings was quashed with a stern “don’t ask, don’t tell” policy, there’s been a campaign to slowly normalize the idea that alien technology is a possibility, which, for some reason, has been getting louder and louder in recent years.

Stuff about Geopolitics, Economics, and the Finance Industry
Mutual Funds Fold
The number of mutual funds in the US fell to its lowest level since 2013. A net closure of 376 funds brought the total down to around 9,000, according to the FT. Meanwhile, 131 net new ETFs were opened as investors increasingly prefer that vehicle over the mutual fund dinosaurs.

Fast and Furious Inside Rounds
The Information reports that inside rounds – when a startup raises money from only VCs already backing them – reached a record high of $30B in 2020, a seven-fold increase from a decade ago. Already in 2021, insider rounds total $21B (data through April 22nd). There is always a little outside skepticism when a company prices a round without any new investors offering pricing feedback, as there is strong motivation for investors to markup their own assets (not that anyone in Silicon Valley would ever do that). Of course, whenever only a handful of private investors are involved in pricing a private company with a wide range of outcomes, it’s not exactly a market-driven outcome with any level of accuracy even when it’s not an inside round. The number of times I’ve read about companies doing multiple raises in short succession recently at much higher valuations is staggering. It turns out that inside deals only price about 2.2x higher than past deals (vs. 2x for rounds that include new investors); however, since they are being priced with increased frequency, that ~10% difference compounds quickly.

Impending Sneaker Wave Baby Boom?
The long decline in US birth rates continued with a 4% drop in 2020, reaching the lowest level since 1979. The US, like many other developed countries and China, has a birth rate below the population replacement rate of 2.1 births per woman (currently at 1.6 in the US). Surveys indicate that around one third of baby seekers decided to delay due to economic uncertainty and pandemic health risks. Historically immigration has helped offset periods of low births in the US, but that trend has slowed in recent years. Despite the dearth of babies, sales of pregnancy tests have been booming since June 2020 with 13% growth (about 6x the historical growth rate). The bolus of Millennials born in the late 1980s and early 1990s, many of whom are moving out of cities into the burbs, may be at root. But, as John Burns Real Estate Consulting points out, this group of youngsters is so far much less likely to be married and have kids at age 30 compared to prior groups.

✌

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 simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.