S3T Aug 28 - Forceful Fed, Healthcare setbacks, Saudi shift, Web3 investment, Peach Salsa, Moyenne Island...

S3T Aug 28 - Forceful Fed, Healthcare setbacks, Saudi shift, Web3 investment, Peach Salsa, Moyenne Island...
Golden Day for Whales - Edited Dall-E generation Aug 2022

Setbacks on the path to a better future - whether for energy, finance, healthcare or even personal goals - are a part of life. When setbacks happen an internal assessment of what can be learned and improved is the best investment in future success.  


🎢 Macro Roller Coaster

Pain & Optics

Federal Reserve Chair Jerome Powell's remarks at Jackson Hole this past Friday made several signals that the market interpreted very negatively.

  • It will take time to resolve this inflation problem (no surprise for S3T members: see S3T June 12 "A different kind of inflation problem").
  • Unemployment will rise over time, as the Fed "forcefully" uses monetary tools that have a "restrictive" effect on the economy and "bring some pain to households and businesses."

Will be important to watch the market psychology over the next few weeks as we move toward the Sept Fed announcements and the mid term elections. The wildcard question: will impacted consumers forgive and forget the optics of the Jackson Hole meeting: a well-heeled enclave at a luxury lodge ($400 and up per night), pontificating about how they'll need to inflict pain on the masses. Its for your own good.

🏥 Healthcare Setbacks

Amazon announced this week it will shut down Amazon Care December 31st. The venture was impacted by nursing shortages and reported challenges in navigating medical safety and costs concerns.

This adds one more to a string of reversals for high tech plays attempting to disrupt healthcare: Haven, Google Health, Oscar and Clover.

Why are these exceptionally well-funded, highly-talented firms struggling?

I think the answer relates to confusion that persists about 3 aspects of healthcare. It is truly hard to detangle - not claiming to have easy answers - but here are the 3 aspects where improved clarity could enable better chances of truly tangible improvements to healthcare:

  • Confusion about what innovation is needed - a significant portion of healthcare innovation focuses on bringing to market new drugs, devices or capabilities that add to the cost problem rather than resolving it. These add to cost either directly via the pricing of the drug or device, or indirectly - by stuffing new functionality, integration layers into the already unwieldy and inefficient collections of systems that the industry runs on. These indirect costs show up in the form of new fees from integration intermediaries and in the form of new costs from increased entropy: increased operational support and maintenance costs driven by increasingly chaotic mixes of old and new technologies.  
  • Confusion about Moral Hazard - As noted in previous editions of S3T the mental economic models that drive American healthcare are tangled up in an 18th century moral hazard logic that conveniently holds consumers uniquely responsible for moral hazard, while turning a blind eye to the moral hazard implicit in the behaviors and decisions of capital managers.  
  • Confusion about the Risk Challenge in healthcare - healthcare today is in new territory regarding risk. The current approaches were developed decades ago, when a smaller percent of the population had health insurance, a smaller set of conditions were considered treatable, and when it was deemed permissable to manage healthcare risk via exclusionary underwriting. This exclusionary approach protected capital by excluding those who lack the preferred financial or health attributes (via pre-existing conditions or pricing mechanisms) or by throttling down their access to care (via measures like price-discrimination and largely unregulated prior authorization methods). The Affordable Care Act effectively crippled this exclusionary underwriting strategy in favor of more inclusive underwriting. Unfortunately, in the years since ACA's establishment, the industry has experimented in disappointingly narrow ways with non-sustainable approaches that push risk onto doctors and patients.  

This last point bears some explanation. Post ACA trends saw new arrangements between payers and providers forced hospitals and medical providers to take on risk. Likewise product designs increasingly pushed risk onto patients via higher deductibles or higher costs if they weren't able to get their needs met by a narrower set of pre-approved medical facilities.

Both of these approaches have run afoul of the reality that patients and their doctors are not positioned to even understand let alone manage medical funding risks. Customer feedback, healthcare worker burnout, not to mention the struggles of both high tech and traditional insurers, offer what should be a convincing enough base of evidence that a better approach is needed. Curiously, the broader discipline of financial engineering has a larger toolbox that so far has been largely unexplored by healthcare.

⛽ Oil to Batteries

While some continue to seem unclear about the future of fossil fuels and renewable energy, Saudi Arabia is starting their shift from the oil supply chain to the EV battery supply chain - granting mining and production rights for materials needed to create batteries.

To be clear, energy supply issues from the pandemic and the Russian invasion of Ukraine did revealed a painful gap between the world's energy demand vs supply:

  • Renewables have been growing fast, fueled by green friendly countries content to depend on other countries for what they presumed would be tapering need for fossil fuels.  
  • Traditional energy sources in these regions did not received the necessary investment to meet demand in the wake of pandemic supply chain issues and a conflict involving a major supplier (Russia).

In spite of this (serious) setback, the trend toward renewables seems set to continue along the general lines of "peak oil" projections from BP and other energy suppliers perhaps with adjustments as the implications of the pandemic, inflation, Russian aggression and de-globalization play out. This month 15 universities released findings based on hundreds of studies which indicate the scientific feasibility of meeting 100% of the globe's energy needs with renewable energy systems by 2050.

Web2 to Web3

Top Crypto Assets were down again this week after the remarks from Jackson Hole.

In spite of the fear uncertainty and doubt (FUD) in the general crypto markets, forward looking public companies are quietly continuing to invest in blockchain companies - a tacit acknowledgement that the next generation platforms are being designed and built on blockchain architectures.  

This stark difference between the steady investment in building new Web3 and crypto capabilities vs the hot and cold sentiment about the Web3/crypto assets themselves raises questions about the mindsets of the investors.  

Consider the differences between these 4 investor mindsets:

  • Believing: “I believe Eth will be the major compute capability in the future and I have allocations right now that reflect that belief. I'm all in.”
  • Hedging: "I think there's a good chance Eth will be a major compute capability, but I also think Solana or Cardano could end up occupying the top slot in that space. So I'm investing in all three."
  • Managing: "I see several contenders for compute, I don't have any way of knowing which one, but I've decided to watch these 15, and to actively invest in these 5 for the next 12 months. I'll change my allocations based on the respective performance indicators of each capability."
  • Manipulating: "I know where I want to buy and I think I can help things get there with a little help from my friends." A lot of money went into crypto in the latter half of 2021 including from big players. They would very much like to bring down their average asset costs by buying at prices that are as low as possible.  

🌏 Change Leadership: Internal vs External Assessment

This year, with its mix of economic shocks and uncertainties is a very tough environment for change leaders and innovators. Setbacks and sharp curves in the road are to be expected.

When things don't go as you'd hoped there is always a temptation to look at the external factors and players for answers about where things went wrong.

While this is natural, it is also not a good investment of your time.

Here's why:

Every effort is beset with unfortunate circumstances and unsupportive personalities. Take a moment and think about someone from the present or from history, someone you know or someone you know of, who achieved something notable.

Do you realize that if you were to carefully investigate the conditions and constraints they faced, you could write a very realistic novel about all of the insurmountable obstacles they faced and how those obstacles prevented them from achieving their goal.

But that novel would be fiction - because those obstacles DID NOT stop them. The obstacles were there. But they ultimately didn't prevent the achievement.  

So what is the better way to invest your time and focus?  

Its a better investment to assess internally: what can I learn, what can I do differently? And make it active: what AM I learning now? what am I starting to see and do differently? This frees you up to see how you can take different approaches to overcoming the obstacles, rather than staying stuck in beliefs that its just not possible or negative thoughts like "this is what always happens to me."

Assessing what you can learn and improve is a good way to invest in your future success. And don't be afraid to ask for help. Or at least talk to trusted friends about what you are going through. The odds are you'll face difficult future scenarios where the lessons you're learning here now can benefit your success then.

Upgrading your own behaviors and skills is always a better investment than wishing other people would upgrade theirs or wishing for a different set of circumstances.  


🍱 Sensible Ideas

I am blessed to be part of a family that knows their way around the kitchen and the campfire. So each week I share what I call "sensible ideas" for good times and good food!

Peach Salsa

Fresh peaches are probably showing up at your local supermarket and that's a good excuse to take a few minutes and add some peach salsa to your life. All you need are fresh peaches, onions, red bell pepper, garlic, cilantro, lime and a spicy pepper. I used a red fresno pepper here, but jalapenos or even habaneros (in moderation) will work.  

I cook the ingredients briefly in a skillet, then serve it warm with an entree (you can do a lot of salsa/veggie mix combinations like this).

Once the salsa was done and placed on the plate, I quickly fried an egg (ok 2 eggs) with some aged cheese from a local cheesemaker, and added a few slices of spicy fennel sausage. What I like about this kind of meal is how fast it comes together. Total time to chop, cook, prep to plate comes in under 15m. Try it! Life is too short not to have some fun in the kitchen.


🌴Nature Notes

Moyenne Island: Brendon Grimshaw's Labor of Love

Just now hearing about this inspiring story of Grimshaw who over his lifetime cultivated and nurtured the health and habitat of an island in the Seychelles. Today the island is a sanctuary for a diversity of flora and fauna including tortoises that are older than most of us.

Moyenne Island: The world’s smallest national park
Once a neglected wasteland, this paradisiacal eco-reserve stands as a reminder of what the Seychelles were like before tourism arrived.

💬 Final Note

Thanks again for reading and sharing. Hope you are all S3T for a successful week!

If you haven't, take a minute to subscribe and get S3T delivered free to your inbox each Sunday morning. Feel free to forward this to a friend and continue the conversation on the S3T Discord, Twitter or LinkedIn. I'm thinking about a IRL event for subscribers. If you have ideas drop me a note!

Thank you!

Ralph


Opinions mine. Not financial advice. I may hold assets discussed.

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