S3T Sunday Edition March 26 - Hyperinflation, Sick Banks, IP laundering, Big Consulting, Lab meat, Layer 2s, Spicy Margaritas...
Happy Sunday! Listen to this edition on the S3T Podcast.
Macro Chaos
The Fed raised interest rates another quarter point and Deutsche Bank joins the growing list of ailing banks.
The average costs for common household goods is up 13% and cheaper products are increasing their market share significantly.
Meanwhile the Fed's bank rescue program is injecting more money into the economy, reversing the last several months of tightening per the Fed's own charts:
Lyn Alden's insights on the relationship of banks and interest rates:
When they try to raise rates and suck out liquidity too quickly when debts are this high, chaos ensues. Can't fight 1940s-style inflation with 1970s-style policy.
— Lyn Alden (@LynAldenContact) March 19, 2023
Going forward, the Fed can either damage the currency or damage the long tail of small and medium banks. pic.twitter.com/XQHMpMXDMf
Remember the Federal Reserve comments at Jackson Hole last year?
Basically, that working families were going to feel pain as interest rates rose, but it was for the good of the economy? Fast forward a year, and when banks start feeling the pain, suddenly its, "Oh we need a cash infusion." Disappointing.
This meme is making the rounds:
If you are wondering how to determine your Bank's health, read up on the Texas Ratio, and these additional methods.
A Bet
Amid all this, Balaji Srinivasan, author of the Network State, threw down a hyperinflation bet that BTC would hit $1M in 90 days because in his view, bank failures will increase, and people will conclude that government-issued currencies just aren't safe anymore. (Hear Srinivasan's logic in this Bankless interview).
Some struggle with what to make of this because Srinivasan is such a respected voice in tech and crypto:
- In the Network State, he lays out a coherent framework for thinking about the evolution of money and governance.
- His Idea Maze (PDF version of original paper here, Podcast with explanatory remarks here) is regarded as required reading for founders.
This latest prediction doesn't seem to fall into the coherent or "required reading" categories: it muddles the concepts of a hedge vs. a full replacement.
As Forbes noted, this isn't the first hyperinflation bet from a bitcoin maximalist: Jack Dorsey made one in 2021.
Smart people can develop strong logic that is elegant, and mentally pleasing. But markets are driven by messy human behavior not logic. On any given day:
- A percent of the market painstakingly follows a disciplined strategy that is completely wrong.
- Another percent has the correct strategy but abandons it for greedy impulses.
- Another percent panics and does random things over nothingburgers.
By the end of the day everyone's position has reversed.
Sure, the past 5 years taught us anything's possible. But drive to your community soccer park, your mall, your mosque, your kid's school, and ask yourself: are all these people going to buy BTC? If they did, will their utility companies let them pay their bills with it? Even if all that works out and Bitcoin heads to $1M, how many opportunists will sell, and bring the price right back down? ....Down to a price lower than all these people paid? (And stay down for the next 2 years).
Those opportunists didn't let BTC get past 29K this week. Set a reminder for June and let's see how high they let BTC go then.
A quick note on Financial Planning: Talk to your trusted financial advisor about your specific situation and what kinds of moves make sense for you. Some view assets like Bitcoin as hedges against inflation, but Bitcoin and other digital assets are risky and should only be approached with advice from qualified advisors.
Emerging Tech
AI from Google: Breaking Bard
Google rolls out Bard its ChatGPT competitor as a "complement not replacement for search." Interested individuals can join the waitlist here.
Seems Bard is already caught up in a scandal that illustrates the risk of AI tools being used for IP Laundering...ie recycling Intellectual Property so it appears in a public domain channel without citing its original authors or creators.
THere will continue to be revelations about the flaws and risks in AI. It's important to track these headlines, but recognize that they tend to point us toward the wrong questions: Is it safe/good/bad/bannable etc.
I think the really important perspective for teams and companies is:
This is a tool, it can be used for good or bad and it needs to be used carefully. Using it effectively will require a lot of careful learning, and willingness to be iterative (try, learn, correct, repeat).
Which brings us to the question to focus on:
What is your plan for learning how to use this tool for competitive advantage without hurting yourself or your customers? And getting up this learning curve before your competitors do?
FDA Oks Cultivated Chicken
Good Meat got the green light this week from FDA and plans to offer cultivated chicken - a new form of poultry made from cells instead of raised and slaughtered animals. The company now must work with the Dept of Agriculture for necessary approvals so it can proceed with plans to roll out cultivated chicken at Chef Jose Andres restaurants across the US. (More about one of Chef Andres' restaurants in the Sensible Ideas section below).
Layer 2 Blockchains
Layer 2 transactions are surpassing transactions on the Ethereum main net. This seems to be enabling a "shaking out" of what roles will be played by Ethereum vs the Ethereum-compatible Layer 2s. A quick explanation of Layer 1 vs Layer 2 in blockchains:
- Layer 1 refers to the core blockchain itself that provides foundational capabilities.
- Layer 2 refers to extended capabilities for specific use cases, which benefit from the foundational capabilities of Layer 1.
For example in Ethereum's Layer 1 provides security and basic recordkeeping that Layer 2's can reuse (instead of having to build them all over again). More detailed explanation here.
Backlash against Big Consulting
We've learned to loath Big Government, Big Tech, now a new book wants to teach us to loathe Big Consulting.
The Big Con: How the Consulting Industry Weakens Our Business, Infantilizes Our Governments, and Warps Our Economies by Mariana Mazzucato and Rosie Collington delves into the impact of "Big Consulting" on industry and government. Full Review here.
The general themes of this book have been building for some time. Confessions of an Economic Hitman (2004) shaped one of the early (and debated) narratives of elite advisors providing executives and politicians with expertly crafted justification to rain misfortune on the world.
More recently, the themes began to involve younger, purpose-driven employees clashing with the established norms of their firms, sparking debates that are "intensely uncomfortable...for executives at corporations across the world." This is examined in the 2022 book "When McKinsey Comes to Town" which btw, features other firms besides McKinsey (Synposis of reviews here). Some of the concerns focus on conflicts of interest, others on unchecked power.
Change Leadership Perspective
Three considerations for getting the best value from consulting and advice in general:
- Using your own judgement. Yes, you don't know everything. But you do know your customer. You know your values and your purpose. You need to use your own judgement to make sure you stay true to those things. This means striking a balance between declining good advice vs. the kind of over-reliance on outside consultants that turns leaders into professional checkwriters who must pay someone to tell them what to think.
- Doing your own homework. Real world example of why it doing your own homework matters: For decades, consulting firms advised clients to outsource (which often benefitted subsidiaries or partners of the consulting firms). This default advice to outsource conveniently ignored known economic realities described by Ronald's Coase's Theory of the Firm (PDF and explanation here) and overlooked costs - external and internal - that firms were saddled with long after the consulting firm had left town. (Any executive with a decent reading habit is going to run into Coase's paper sooner or later and be innoculated against the folly of knee-jerk outsourcing).
- Conferring with others. Many Change Leaders operate in new territories that don't yet have go-to frameworks that consultants can "pull down off the shelf" to tell you how to succeed. In these cases, where the recipe hasn't been figured out yet, comparing notes with other early pioneers might provide more value.
In some ways, consulting companies are like an early version of ChatGPT - they both aggregate information and experience into packaged summaries that ring true, but require judgement in how they are applied.
🍹 Sensible Ideas
Spicing Up Your Drinks
If you're in downtown Chicago, head to Chef Jose Andres's Bar Mar and order the Spicy Shiso Margarita. It just works. Don Julio blanco tequila, lime, shiso Cointreau, and of course serrano peppers. If you want to make these spicy margaritas at your own party, The Modern Proper has a very similar Spicy Margarita recipe - also with serrano peppers - that is easy to follow.
🐦 Nature Notes
New Arrivals
Birdcast restarted its annual spring migration nightly radar tracking of birds in flight. Go to Birdcast.info to learn how this works, and enter your zip code to see forecasts for the next couple evenings, or to see a replay of the birds flying over your area last night.
Sort of related: Birding is now, finally, officially cool and becoming more diverse. I knew it would someday! :)
As an aside, I was so happy to be able to go out for a sunrise hike early Saturday morning and hear/see - for the first time this year the Yellow Throated Warber (pictured above), arriving back in the stream valleys of NC from its winter habitat. Also heard (but did not see) the Louisiana Waterthrushes for the first time. More are on the way and will be arriving in the days and weeks ahead: Redstarts, Hooded Warblers, Flycatchers, and many others.
💬 Final Notes: Time Tracker, and Job Searches
Thank you all for trying out the Time Tracker - I love hearing how people are using their time more intentionally and being able to enjoy and do the things important to them.
A Special Note to You or anyone you know who's been laid off recently:
Sad reality: the talent and job search industry is a bit chaotic and will waste a lot of your time if you let it. So if you're in the process of figuring out your next career step, it really helps to budget your time as follows:
- A percent of time for creating and updating resumes.
2. A percent of time for searching job boards (LinkedIn, Indeed, etc) and responding to postings. Again, you could burn a lot of time filling these out and most of them are never seen by a human. So budget your time accordingly (the Time Tracker can help you with this).
3. A percent of time networking. This is super important.
4. A percent of time showcasing and socializing your skills and ideas. This could include volunteering in contexts that allow you to demonstrate your skills while building your network, speaking at events, or creating pitches (startups, projects, products) that showcase your experience, perspective and ideas.
#1 and #2 are mandatory...you have to spend some time doing it, but just realize they usually put your resume in front of bots and people with no decision making authority (who's primary role is to shield decision makers from the noise of the world). #3 and #4 have a higher likelihood of getting you connected with someone who has a need, and has the authority to hire or contract the right talent for that need.
Again, you can download and learn how to use the Time Tracker here.
Thanks again for reading and sharing. Hope you are all S3T for a successful week! Feel free to forward this to a friend and continue the conversation on the S3T Discord, Twitter or LinkedIn.
Thank you!
Ralph
Opinions mine. Not financial advice. I may hold assets discussed.