Curated Insights 2018.05.27

Borrow…If you dare

Your problem is the margin. With $10,000 to start, if you borrowed millions, you would lose all of your equity. In fact, having a leverage ratio more than 4:1 ($30,000 borrowed) would have wiped you out in most years. It’s not a matter of if, but a matter of when.

As soon as he said it, I knew he was right. I had forgotten one of the simplest ideas in finance: the path matters. The problem is that while we know that you will get an a high return by the end of the year, if you hit a bad patch of too many negative return days in a row (which is normal), the leverage will wipe you out completely. In other words, the journey is more important than the destination.

The point of all of this is that even when we know the future with certainty, borrowing money isn’t a surefire solution to win big. Given we will never know the future with any degree of certainty, leverage is one of the most dangerous things you can do as a retail investor, so I do not recommend it. If Warren Buffett only levered 1.6:1 on average throughout his career, and he is arguably the greatest investor of all time, what chance do you stand of using leverage properly?

Your investment journey will effect you far more than your investment destination. Just because you know the market should get 7% on average each year doesn’t mean you won’t live through sharp declines and decades of no real returns. These kinds of events are rare, but they happen and they can affect how you perceive markets.

The Bill Gates Line

This is ultimately the most important distinction between platforms and aggregators: platforms are powerful because they facilitate a relationship between 3rd-party suppliers and end users; aggregators, on the other hand, intermediate and control it.

Of course that is the bigger problem: I noted above that Google’s library of ratings and reviews has grown substantially over the past few years; users generating content is the ultimate low-cost supplier, and losing that supply to Google is arguably a bigger problem for Yelp than whatever advertising revenue it can wring out from people that would click through on a hypothetical Google Answer Box that used 3rd-party sources. And, it should be noted, that Yelp’s entire business is user-generated reviews: they and similar vertical sites are likely to do a far better job of generating, organizing, and curating such data.

Presuming that the answer is the image on the right — driving users to Yelp is both better for the bottom line and better for content generation, which mostly happens on the desktop — and it becomes clear that Yelp’s biggest problem is that the more useful Google is — even if it only ever uses Yelp’s data! — the less viable Yelp’s business becomes. This is exactly what you would expect in an aggregator-dominated value chain: aggregators completely disintermediate suppliers and reduce them to commodities.


If we end up sitting around in self-driving cars watching ads, Google is going to make billions

New research from UBS predicts that US autonomous-vehicle revenue will reach $2.3 trillion by 2030—and 70% of the estimated is expected to come from selling experiences to the former drivers. The biggest opportunity—$1.2 trillion—will be in robo-taxi services, moving people and things around in autonomous vehicles.

The second-biggest opportunity, or $472 billion, will be in in-car monetization: selling ads or services against the time spent in the car not driving. Not surprisingly, UBS thinks Waymo—or more broadly, Google’s parent company Alphabet—will be the dominant player in this category, perhaps capturing 60% of the revenue. UBS thinks Waymo’s combined opportunities in services and software make Waymo worth $75 billion today, or roughly 11% of Alphabet’s current valuation.


Netflix misunderstandings, pt. 1: Netflix’s content budget is bigger than it seems

While it might seem pedantic to criticize statements such as “Netflix will spend between $7 billion and $8 billion on content in 2018,” the distinction is critical. To point, Netflix’s 2018 spend is likely to be closer to $12B. Not only is this nearly 50% more than publicized, it means that Netflix will spend more on non-sports content than any of its traditional TV peers (e.g. Disney, Time Warner, NBCUniversal) – even when their many individual networks are consolidated on a corporate basis. What’s more, the disconnect between Netflix’s cash spend on content and amortization expense has grown substantially over time. In 2012, this ratio was 1.1x (cash spend 10% higher than amortization). In both 2016 and 2017, it was 44%. As a result of this growth, the impact of conflating or confusing the two has also grown.

Netflix’s content costs are high in part because it now buys out all the rights (e.g. home video, syndication, EST) for its Originals on a global basis, while traditional networks (e.g. FX or ABC) will typically buy only select content rights and on a single market basis. Furthermore, buying out all rights means that the talent involved in a hit series (e.g. cast, writers, producers) don’t have access to any of the economic upside from participating in a hit series. As such, Netflix must also pay extra (and upfront) to compensate the talent responsible for their Originals for this lost income opportunity (albeit on a risk-adjusted basis). As a result, Netflix’s costs for a given volume of original content is substantially higher than that of linear and/or domestic networks with the same output. That said, this same dynamic means that while most of its traditional networks hedge their content investments, Netflix quadruples down.

Netflix’s critics and competitors typically focus on the fact that, while profitable on an accounting basis, Netflix keeps spending more cash than it generates from operating its business. The company burned $2B in cash in 2017 (up from $1.7B a year earlier), and expects that figure to grow to $3–4B in 2018. What’s more, Netflix CEO Reed Hastings has promised that negative free cash flow will continue for “many years” and the company continues to accumulate debt (raising annual interest expenses) and content liabilities (increasing the amount it’ll need to pay suppliers over time). However, this cash loss only exists because Netflix is funding next year’s content against this year’s revenue. Netflix could have chosen to stabilize its 2018 content offering at 2017 levels (i.e. not ramp up spending), and its actual cash spent would have been just $6.2B (roughly equivalent to its content amortization) – a “savings” on the books of $2.7B. And had the company done this, it would would have generated $700MM in cash, not lost $2B.

Making sense of mortgages: The problem, and the opportunity

The single most important chart for any portfolio manager or investor – The power of diversification (low correlation)

Of course, the picture represents ideal conditions. There is some bad news with this free lunch. It is hard to find. You will not find many low correlated asset classes and those return to risk values can be volatile. The incremental improvement is strong with the first few diversifiers but there are diminishing returns after that initial boost.

In a practical sense, the first asset class you add to an equity portfolio will be bonds. It has been the great diversify for the last decade or two, but once you get beyond bonds and commodities, the ability to find those low correlation assets becomes much harder. This is the true value of alternative strategies

What does this chart mean in reverse? If there is an increase in correlation across asset classes, the return to risk will fall even if the return to risk of any given strategy stays constant. This is will be the incredible shrinking free lunch and is why it is so important to find strategies or investments that have stable correlation relative to traditional asset classes.

Return is critical but hard to forecast. Volatility is important and leads to downside risks. Unfortunately, many forget the power of covariance and its impact on diversification, yet this is component to portfolio construction that can have a strong impact.

Next climate challenge: A/C demand expected to triple

The amount of energy needed for cooling will triple, reaching a level equal to China’s total power demand, the new report finds. As the world warms in response to human-caused climate change, the need for air conditioning will become more acute, particularly in the Middle East and South Asia. IEA estimates that left unchecked, air conditioning will account for 18 percent of the total worldwide increase in CO2 emissions by 2050. And rising demand for cooling is “already putting enormous strain on electricity systems in many countries,” IEA said.

Curated Insights 2018.02.11

Why Expedia or Priceline might just be the next great hotel brand

“I think we [in online travel] have all innovated on the service layer, and most of the people in the room are working on the service layers, but the true innovation is going to be actually owning and operating the assets — the airplanes, the hotels, not so much the cars actually. But that aspect is hugely capital intensive, and it’s ripe for some new ideas, and someone will get there. I have a $100 billion, so it won’t be me. If you own and operate the hardware, you can do a lot more on the innovation side than from the service and software layer.”

“Online travel agencies are seeing their revenues go down and it costs them more to advertise on Google because the search criteria are going up. The search price is going up, and the online travel agencies had a tough third quarter. I think they see the writing on the wall. We’ve had overtures with online travel agencies reaching out to us and trying to find ways to partner more [with us].”

“They have to evolve because there are fundamental threats to their existence. They have to have a good relationship with hotels or they won’t have anything to sell.”

“The key point that we want to reinforce is that hotel commission rates are in the 10 to 15 percent range for the large chains and 15 to 25 percent for smaller brands that make up the bulk of Booking.com’s inventory. This compares to airline commission rates that are anywhere from zero to one or two percent in most developed markets. The rationale for the airline inventory is having a complete product to drive traffic, but the margins on those bookings themselves are much lower than for hotels. Booking.com has recently added airlines, but this is simply pushing traffic into its Kayak platform …”

“They were aggregating similar independent hotels with their own brands and it was a scale play. But they didn’t have access to every single hotel in a market. To compete with the online travel agencies who are spending several billion dollars a year in marketing is an expensive undertaking. Just because you have the capability of having content doesn’t mean you’ll be successful in bringing customers to your site, or doing it in a way that’s economically viable to run a business. I’m not surprised it didn’t work; AccorHotels at heart is a hotel brand company and hotel operator.”

What really matters most to consumers today, he said, isn’t the brand itself but the rankings and reviews associated with an individual hotel property. “The first thing a customer checks are the rankings and the commentary. That’s a much better quality assurance than a brand can provide. People choose to stay at an Airbnb based on social ratings and comments from users. They don’t need assurance that there’s a brand on it. That’s part of the dynamics and in essence, the brands are disappearing and what prevails is distribution. If I get the best distribution from an online travel agency, why would I sign up with another company?”

Tackling the internet’s central villain: The advertising business

And for all its power, the digital ad business has long been under-regulated and under-policed, both by the companies that run it and by the world’s governments. In the United States, the industry has been almost untouched by oversight, even though it forms the primary revenue stream of two of the planet’s most valuable companies, Google and Facebook.

The report chronicles just how efficient the online ad business has become at profiling, targeting, and persuading people. That’s good news for the companies that want to market to you — as the online ad machine gets better, marketing gets more efficient and effective, letting companies understand and influence consumer sentiment at a huge scale for little money.

But the same cheap and effective persuasion machine is also available to anyone with nefarious ends. The Internet Research Agency, the troll group at the center of Russian efforts to influence American politics, spent $46,000 on Facebook ads before the 2016 election. That’s not very much — Hillary Clinton’s and Donald J. Trump’s campaigns spent tens of millions online. And yet the Russian campaign seems to have had enormous reach; Facebook has said the I.R.A.’s messages — both its ads and its unpaid posts — were seen by nearly 150 million Americans.


Why JP Morgan, Daimler are testing quantum computers that aren’t useful yet

Chip experts say the phenomenon known as Moore’s Law that drove exponential gains in computing power for decades is now ending. Quantum computing could be a way to revive the rate of progress, at least in some areas. “If you can successfully apply it to problems it could give you an exponential increase in computing power that you can’t get” through traditional chip designs, says Bob Stolte, CTO for the equities division inside JPMorgan’s investment bank.

If and when they arrive, quantum computers won’t be good at everything. But physicists and computer scientists have proven, using theory, that even a relatively small quantum processor could do more than a phalanx of conventional supercomputers on some problems. Conventional computers work on data using bits that can be either 1 or 0. Quantum computers encode data into devices called qubits that can enter a “superposition” state in which they might be considered both 1 and 0 at the same time, allowing computational shortcuts.

The path to tackling other problems on the wish lists of Daimler and JPMorgan is less clear. Brecht says the automaker also hopes quantum computers could optimize routes for delivery vehicles, or the movement of parts through factories. Some problems in finance, such as adjusting portfolio risk, can boil down to similar math.


Why we didn’t invest in Ecolab

Integral to Ecolab’s moat in the Institutional segment is its direct sales force that provides customers with “high touch” relationships. Not only are these relationships hard to replicate, but no competitor is remotely close to matching Ecolab’s 26,000-plus salesforce. Ecolab estimates this figure is two-to-five times larger than any competitor’s.

Ecolab benefitted mightily over the last 10-20 years from inept competition. Its main competitor for North America institutional cleaning business is Diversey, which was most recently sold to Bain Capital in 2017 by Sealed Air. This was the fifth time Diversey had been sold in the previous 21 years. As a consequence of being passed around like a hot potato for two decades, Diversey’s strategy was inconsistent. Ecolab capitalized on many of Diversey’s mistakes.

We also had concerns about S.C. Johnson re-entering the institutional cleaning business, Bain Capital’s push into the European hygiene market, and potential impacts from food service automation.

We further concluded that the acquisitions of Nalco and Champion diluted Ecolab’s overall moat by diminishing the impact of the wide-moat Institutional operations. Indeed, we think the two deals were motivated by growth rather than by ROIC. If that’s the case, it would support our thesis that the Institutional business is a legacy moat with slower growth potential. Otherwise, we would have expected management to reinvest capital that was used in M&A back into the cleaning business.

An inventor of the VIX: ‘I don’t know why these products exist’

In my wildest imagination I don’t know why these products exist. Who do they benefit? No one, except if someone wants to gamble -– then, OK, just go gamble… And who exactly made money? The VXX from its inception in 2009 is down, what, 99%, even after this move… It’s kind of sad that these products exist in the first place, but it’s hard to stop it. If you stop this, something else will come up. Bitcoin will come up.


This physics breakthrough could help save the world

…the turbulence created when we pump air, water, oil, gas and other substances through countless miles of ducts and pipes. Thanks to its confounding effects, fully 10 percent of all the electrical energy produced on Earth gets wasted.

They investigated, for example, the effect of extra stirring from rotors placed inside a pipe, or by the injection of jets of fluid along the pipe walls. Intuition suggests that these would increase turbulence, and they do, but in both cases the flow downstream quickly returns to the smooth state. More important, the interventions can reduce the overall friction associated with turbulence by as much as 90 percent, something few researchers would have expected.


The magnetic field is shifting. The poles may flip. This could get bad.

The dangers: devastating streams of particles from the sun, galactic cosmic rays, and enhanced ultraviolet B rays from a radiation-damaged ozone layer, to name just a few of the invisible forces that could harm or kill living creatures.

Solar energetic particles can rip through the sensitive miniature electronics of the growing number of satellites circling the Earth, badly damaging them. The satellite timing systems that govern electric grids would be likely to fail. The grid’s transformers could be torched en masse. Because grids are so tightly coupled with each other, failure would race across the globe, causing a domino run of blackouts that could last for decades.

Curated Insights 2017.11.26

What Tesla’s big rig must do to seduce truckers

In North America alone, the largest heavy duty freight trucks—Class 8 semis—account for about $30 billion in sales each year, or more than 250,000 new trucks, according to industry data tracked by Bloomberg. Class 8 trucks, which have a loaded weight rating of at least 33,000 pounds, come in a variety of shapes and sizes, from trash trucks and cement mixers to city buses all the way up to tractor-trailers whose drivers spend days and nights living on the road. The most common day cab delivery trucks cost around $100,000, and big rigs with sleeper cabins are about $150,000.

Batteries are the single most expensive component of an electric truck, and the battery of a cross-country hauler could cost $100,000 even before they build the truck around it. But that upfront investment can be offset by cheaper operating costs. Running a truck on electricity saves tens of thousands in fuel costs as well as savings of roughly 7 cents a mile on lower maintenance costs. And if the autonomous driving system is good enough to run without a driver, it could also dramatically cut labor expenses, which add about 57 cents for every mile on the road.

Any range less than 400 miles is likely meant for local and regional deliveries, the sort of thing done by UPS and FedEx or the type of hub-and-spoke model used by giant retailers such as Wal-Mart Stores Inc. to move goods from distribution centers to stores or warehouses. If Tesla wants to go after the longest routes to replace what are known as “over-the-road” trucks, which feature sleeping cabins for multi-day driving stretches, the company will need a range of at least 500 miles—or else a way to charge an electric truck that’s faster than anything in use now. The battery needs for each of these categories would be different, and so would the costs.

Perhaps Tesla’s biggest advantage over other truck makers is that its semi will share some core parts with the Model 3. Musk disclosed during an earnings call in May that the semi uses “a bunch” of Model 3 motors, which sit in line with the truck’s axles. These relatively cheap electric motors will give the semis unparalleled electric torque for getting quickly up to speed with a heavy load.


This man is leading an AI revolution in Silicon Valley—and he’s just getting started

Booming demand for its products has supercharged growth at Nvidia. Over the past three full fiscal years, it has increased sales by an average of 19% and profits by an astonishing 56% annually. Nvidia meanwhile has so far managed to retain its roughly 70% market share in GPUs despite competition from formidable rivals—among them Intel and AMD—who want their share of the billions in chip sales to come from this new tech revolution. “IBM dominated in the 1950s with the mainframe computer, Digital Equipment Corp. in the mid-1960s with the transition to mini-computers, Microsoft and Intel as PCs ramped, and finally Apple and Google as cellphones became ubiquitous,” wrote Jefferies equity analyst Mark Lipacis in a July note to clients. “We believe the next tectonic shift is happening now and Nvidia stands to benefit.”

“We believed this model of computing could solve problems that general-purpose computing fundamentally couldn’t. We also observed that video games were simultaneously one of the most computationally challenging problems and would have incredibly high sales volume. Those two conditions don’t happen very often. Video games was our killer app—a flywheel to reach large markets funding huge R&D to solve massive computational problems.”

“In the future, companies will have an A.I. that is watching every single transaction—every business process—that is happening, all day long. Certain transactions or patterns that are being repeated. The process could be very complicated. It could go through sales to engineering, supply chain, logistics, business operations, finance, customer service. And it could be observed that this pattern is happening all the time. As a result of this observation, the artificial intelligence software writes an artificial intelligence software to automate that business process. Because we won’t be able to do it. It’s too complicated.”

“We’re seeing early indications of it now. Generative adversarial networks, or GAN. I think over the next several years we’re going to see a lot of neural networks that develop neural networks. For the next couple of decades, the greatest contribution of A.I. is writing software that humans simply can’t write. Solving the unsolvable problems.”

Google advances their future smart clothing vision with focus on delivering an ‘interactive garment’

Notably the user is able to trigger various different types of functionalities through interactions with the interactive garment, such as by touching or swiping the user’s shirt sleeve. In addition, by enabling the triggering of functionality through interactions with a wearable garment, instead of a device, the user does not need to fiddle around with the user interface of a smartwatch or smartphone in order trigger a functionality. In fact, the user may be able to provide the gesture to the interactive garment without even looking at the garment. In addition, a simple gesture to a garment is discreet and thus enables the user to trigger functionalities in a crowded setting without the need to take out their smartphone or other electronic device.


Apple’s ginormous share of industry profit expands, says Canaccord

Apple is capturing more and more, at 72% of total industry profits, up from 68% in the July quarter, while Samsung’s share dipped slightly to 24%. Looking ahead, Walkley thinks Apple’s share of all smartphone units shipped in 2018 will expand to 14.5% from an expected 13.3% this year, while Samsung’s share he thinks will dip to 19.1% from 20.2%. He expects Huawei and Xiaomi, two big privately held Chinese vendors, to both see share rise in 2018, at 11% and 6.4%, respectively. They won’t do as well, however, as Oppo and Vivo, two other Chinese competitors, who may capture 7.8% and 7.5% of the market next year, he opines.


Why Apple’s HomePod is three years behind Amazon’s Echo

The Echo is a truly standalone product at the center of an ecosystem. The cloud-based operating system has made it easy for developers to create thousands of skills or voice-activated apps. By contrast, the HomePod is essentially an extension of the iPhone, like an accessory. When someone asks the HomePod to open a third-party app, the request won’t go directly to the cloud, as with the Echo, but to an iPhone. As a result, developers can’t write apps for the HomePod. They must create tweaked versions of existing iPhone apps. What’s more, Apple has limited the kinds of apps to messaging, to-do lists and notes. If Alexa is the beating heart of the Echo, Siri is almost an afterthought.


Asia’s consumers snubbing global brands for these products

In Indonesia’s $1.3 billion instant-coffee market, the disparity is more pronounced. During that period, Javaprima gained about 12 percentage points for a 33 percent share, while Nestle lost 1.4 percentage points to 16 percent. Nestle declined to comment on the Indonesian market. Javaprima is capitalizing on local trends, such as demand by women and new coffee drinkers for a smooth and creamy brew, director Agus Susanto said.

Nestle’s revenue from Asia, Oceania and Africa fell 23 percent between 2012 and 2016 to 14.5 billion francs ($14.7 billion). To capture more Asian consumers, the company introduced ready-to-drink cold coffees in the region, opened branded cafes at Chinese universities and formulated a Cafe Viet lineup.

Pechoin, owned by closely held Shanghai Pehchaolin Daily Chemical Co., saw its market share jump fivefold between 2012 and 2016, according to Euromonitor. The parent company had revenue of about $1 billion in 2016. The newfound popularity came partly at the expense of the L’Oreal Paris label, which lost more than a fifth of its market share in the same period. Pechoin, founded in 1931, focuses on herbal products and claims to be one of China’s first cosmetics brands.

L’Oreal remains the No. 1 beauty group in China, and the nation’s increasing demand for luxury cosmetics bodes well for its premium positioning, the company said. Paris-based L’Oreal also has boosted efforts to tailor products for Asia. In 2014, it bought Magic, a Chinese brand known for skincare masks, a popular local beauty ritual. The company also introduced a liquid foundation that uses a cushion applicator popularized in South Korea, and it’s competing with Amorepacific Corp. for the Muslim cosmetics business in Southeast Asia.

A new kind of self-sustaining fishery could offset the worst impacts of animal farming

The Ocean Farm 1 – created by leading salmon farming company SalMar – is the first offshore fish farm capable of complete automation in feeding and monitoring fish. According to SalMar, the farm can mature up to 1.5M fish in just 14 months. If the experimental facility proves viable (and environmentally sound) it may compel more companies and governments to use offshore fish farms to help grow our global food supply.

But American seas are newly open for business: The National Oceanic and Atmospheric Administration announced a rule in 2016 that allows for large-scale fish farming in federally controlled waters three or more miles offshore. In Europe, the regulatory environment has been more friendly. The EU embraced policy changes recommending the shift of aquaculture offshore back in 2002; by 2008, offshore farms were operational in Norway, Ireland, Italy, Spain, and several other countries. Norway is arguably the aquaculture capital of the world: Fish farming helped Norway produce around 1.18M metric tons of salmon in 2016, and fish contribute $8B annually to Norway’s economy – accounting for about 8% of its exports.

Developing only 1% of Indonesia’s suitable ocean area could produce more than 24 million tonnes of fish per year or over 3.9 × 1011 individual 4 cm bivalves. If consumed entirely within Indonesia, this volume of additional fish production would increase seafood consumption per capita sixfold. In fact, there is already considerable activity working to expand Indonesian aquaculture.


Asia’s richest banker spots a once-in-a-lifetime opportunity

For India, it’s a $207 billion mess, a pile-up of bad loans years in the making that’s dragging on growth. For the nation’s wealthiest banker, it’s the kind of opportunity that very rarely presents itself. What has billionaire Uday Kotak salivating is the government’s attempt to finally draw a line under delinquent loans, with recent steps to overhaul India’s bankruptcy laws and recapitalize state-owned banks. The moves are intended to lift a burden from the country’s banks and encourage them to accelerate lending, supporting economic growth.

The sense among some Indian executives that they could walk away from their debts without facing consequences was a major factor limiting past efforts to bring delinquent loans in check. The government’s announcement last month that it will inject a record 2.1 trillion rupees into state-owned banks is another sea change, in that it should give the lenders sufficient capital to write off bad loans weighing down their balance sheets.


Billionaire Kotak says Indian banks need to cut costs: Q&A

Debt markets and other segments will put pressure on the bank loan markets because they are working at much narrower spreads between the investor and the issuer. This is going to be one of the biggest challenges at a time when non-bank sectors like mutual funds, insurance, debt capital market and so on are dis-intermediating on the one hand, and technology is commoditizing the lending business at the other.

First is the formalization of finance. For instance, you see a reduction in the cash economy as less money is going into land and real assets, especially in rural India. That money is going into the formal economy which is a mega change which we are seeing. The second trend which we are seeing is the broad-basing of financial services. As finance became broader, savers wanted to look at things in addition to or beyond bank deposits. So money is going into mutual funds, insurance and equities markets. The third is digital. It, combined with Aadhaar (India’s biometric identification program), is a very potent force. We are at about 1,360 branches now. In the past we would have thought we would need about 5,000 branches. But with the digital economy, Aadhaar and customer behavior changes, we believe we can do with less.


Traffic is piling up—and so are its costs

Last year, congestion cost each U.S. driver $1,400 on average, for a total of nearly $300 billion, according to Inrix’s latest annual scorecard. The cost reflects wasted fuel, decreased productivity and lost time, which might include longer delivery times or missed meetings. The biggest losers are the most congested cities.

“We find that 49% to 61% of ride-hailing trips would have not been made at all, or by walking, biking or transit,” the researchers reported.

First digital pill approved to worries about biomedical ‘big brother’

Experts estimate that so-called nonadherence or noncompliance to medication costs about $100 billion a year, much of it because patients get sicker and need additional treatment or hospitalization.

The technology could potentially be used to monitor whether post-surgical patients took too much opioid medication or clinical trial participants correctly took drugs being tested. Insurers might eventually give patients incentives to use them, like discounts on copayments, said Dr. Eric Topol, director of Scripps Translational Science Institute, adding that ethical issues could arise if the technology was “so much incentivized that it almost is like coercion.”

This ex-trucker has some questions about the Tesla Semi

This first version of the Semi will not replace the dozens of thousands of trucks on huge regional or coast-to-coast runs, clocking 2,000 to 5,000 miles per week.

I understand acceleration is a core Tesla brand value, but I’m far more interested in braking. An 80,000-pound tractor trailer needs about 550 feet to come to a complete stop from 55 miles per hour, and I spent a surprising portion of every driving shift trying not to obliterate car drivers who weren’t aware of that fact. Show me how much the Semi can lop off that braking distance.

Companies like Wal-Mart and JB Hunt that have placed orders for Tesla Semis have the routes, terminal control, and money for terminal infrastructure to make the most of the Semi, so we’ll see what the production unit looks like in 2019 (hopefully) and parse the feedback after 10,000 miles of road duty. Don’t be surprised to see more mirrors.


Can carbon-dioxide removal save the world?

Carbon-dioxide removal is, potentially, a trillion-dollar enterprise because it offers a way not just to slow the rise in CO2 but to reverse it. The process is sometimes referred to as “negative emissions”: instead of adding carbon to the air, it subtracts it. Carbon-removal plants could be built anywhere, or everywhere. Construct enough of them and, in theory at least, CO2 emissions could continue unabated and still we could avert calamity. Depending on how you look at things, the technology represents either the ultimate insurance policy or the ultimate moral hazard.

As a technology of last resort, carbon removal is, almost by its nature, paradoxical. It has become vital without necessarily being viable. It may be impossible to manage and it may also be impossible to manage without.

Building arks, rather than trying to predict The rain

“One thing I’ve come to as an investor, is recognizing that there are a lot of ways to make money in the market. There are a lot of investment approaches and philosophies that can do very well, but all of them test the investor in one way or another. Therefore, it’s important for you to figure out how to align your investment philosophy with your own personality – so that when the investment philosophy inevitably tests you, you’re the sort of person who will pass the particular types of tests required to successful manage your investment strategy.”


What is blockchain technology?

The blockchain is still in its nascent stages. However, blockchain technology promises to entirely reshape money, middlemen, and trust. Ultimately, blockchain is as much a political and economic hypothesis as a technological one. Blockchain technology provides a new way to think about how we agree on things. For the first time, multiple untrusted parties can create and agree on a single source of truth, without the use of a middleman. The technology’s implications for traditional middlemen and corporate players are therefore potentially enormous. As the landscape evolves, the future of blockchain will likely take on forms yet to be imagined.

It’s fructan, not gluten, that’s causing stomach problems, says new research

The scientists found that the participants only developed bloating symptoms after eating fructan-containing bars. Other bars, including those with gluten, did not cause the distress. This led the researchers to conclude that fructan, not gluten, may be behind the bowel problems. One big reason it’s important to figure this out – people who are on a gluten-free diet were found to have an increased risk of developing type 2 diabetes by other recent research.


To solve problems caused by sitting, learn to squat

In the past half century, epidemiologists have been forced to shift how they study movement patterns. In modern times, the sheer amount of sitting we do is a separate problem from the amount of exercise we get. Our failure to squat has biomechanical and physiological implications, but it also points to something bigger.

“Every joint in our body has synovial fluid in it. This is the oil in our body that provides nutrition to the cartilage,” Jam says. “Two things are required to produce that fluid: movement and compression. So if a joint doesn’t go through its full range—if the hips and knees never go past 90 degrees—the body says ‘I’m not being used’ and starts to degenerate and stops the production of synovial fluid.”

Curated Insights 2017.08.06

The data that transformed AI research—and possibly the world

Today, many consider ImageNet solved—the error rate is incredibly low at around 2%. But that’s for classification, or identifying which object is in an image. This doesn’t mean an algorithm knows the properties of that object, where it comes from, what it’s used for, who made it, or how it interacts with its surroundings. In short, it doesn’t actually understand what it’s seeing. This is mirrored in speech recognition, and even in much of natural language processing. While our AI today is fantastic at knowing what things are, understanding these objects in the context of the world is next. How AI researchers will get there is still unclear.

“One thing ImageNet changed in the field of AI is suddenly people realized the thankless work of making a dataset was at the core of AI research,” Li said. “People really recognize the importance the dataset is front and center in the research as much as algorithms.”

Apple Glasses are inevitable

There is room for Apple to create value by controlling both the hardware and software comprising AR glasses. The sum will be greater than its parts. Apple’s big bet on AR will represent the catalyst for turning glasses and sunglasses into something more. An engaged base of iOS developers experimenting with ARKit will give Apple Glasses a hospitable app environment.

Apple’s success with Apple Watch has done much to calm some of my fears and hesitation regarding face wearables. With 29 million Apple Watches sold to date, Apple has turned the dynamic of tech meeting fashion on its head. Apple has been able to get people to wear an item that was increasingly losing its place in a smartphone world.

The idea of a product having a “killer app” has been misconstrued over the years. The iPhone really doesn’t have a killer app. Instead, the device itself has turned into the killer app – the most valuable computer in our lives. In addition, the iPhone’s role in our lives has evolved over time – a true sign of value. Apple Glasses would provide an improved view of the world to its user. For some, this will come in the form of clearer vision plus additional context. Others will gain value just from receiving additional context.


The Priceline party, the world’s largest online-travel company

Over the past decade Priceline’s pre-tax earnings have grown at a compound annual rate of 42%, faster than Apple, Amazon, Netflix and Alphabet. It also boasts a 96% gross margin. Its share price has risen by more than 50% over the past 12 months, about four times faster than the broader stockmarket. On July 26th the firm’s market value rose above $100bn.

Priceline’s focus on accommodation helps explain why it is more profitable and more highly valued than Expedia, a rival online-travel company that operates sites such as Orbitz, Travelocity, Trivago and Hotels.com. Expedia does more business booking flights, but these are not as lucrative. Online-travel firms take a meaty commission of 15-18% of a hotel room’s price, compared with a slim 3-4% for airfares.

The most dangerous rival, however, may well come from somewhere else entirely. “We’re all waiting for the moment when a big Chinese company comes in and tries to take market share,” says Erik Blachford, a former boss of Expedia. Ctrip, a giant based in Shanghai and worth an estimated $30bn, is the obvious candidate. But if it indeed makes a move, Priceline will not necessarily suffer. Not only is its Chinese business growing nicely, but it has also invested nearly $2bn in Ctrip’s debt and equity. Small wonder that some analysts consider Priceline the best-run internet company after Amazon.


Why Alibaba could double in two years

China online advertising is $50 billion market, currently Alibaba has about 20% market share. Entire online advertising market will grow at 15% to 20% for next eight years, I expect Alibaba to take incremental share and possibly increase to 30%+ market share of online ads in five years.

AliCloud is No. 1 in China by a huge margin.

Alibaba has a ton of equity investments made over the years. Core holdings include a 33% stake in Ant Financial, 30% stake in Weibo, and 47% in logistics network operator Cainiao.


Amazon moves into self-distribution with Woody Allen’s ‘Wonder Wheel’

Amazon is moving into self-distributing its own movies, putting it on the path to becoming a full-fledged film studio.

With their deep pockets and big ambitions, Amazon and Netflix have upended the film distribution landscape, although they have taken different approaches. Netflix is solely focused on servicing its streaming service subscribers. Amazon believes in premiering movies in theaters before offering them on its Prime digital service. With the move into self-distribution, Amazon now offers all of the services that a traditional film studio boasts — from financing to production to rolling out a picture in cinemas.


Amazon’s ‘Beehive’, drone-carrying trains reinforce focus on logistics tech

CB Insights’ analysis shows that the retail giant has been focused on shortening the distance between warehouses and consumers for some time. They have considered various formats for expanded warehouse networks, including flying warehouses, mobile truck-based mini warehouses, underwater warehouses, local re-stocking stations for drones, and a multi-level drone-docking fulfillment center.


This Amazon threat just got even more real

Already, the price transparency that’s characteristic of Amazon’s consumer e-commerce platform has exposed major flaws in Grainger’s model, forcing the company to roll out price cuts that have squeezed its margins and darkened its EPS outlook. In the face of Amazon’s staggering customer growth, Grainger CEO DG Macpherson’s admission earlier this year that the company hasn’t been able to acquire a new customer under its namesake brand in years and has struggled to use digital marketing to draw business becomes even more worrisome.


Foursquare eyes Amazon Alexa partnership as its tech is quietly built into Snapchat and Apple Maps

In the past four years, the company has been shopping its technology around to other companies, a task that turned out to be surprisingly easy. In an interesting development, Foursquare has found that a lot of companies looking for data or location tech come to Foursquare before Facebook or Alphabet’s Google because those two giants are trying to kill those companies who need help. “We’re like the independent broker of this awesome technology and you’re not tying yourself to Google or Facebook, yet you get these great tools to build competitive products,” Crowley explained.

The partnerships take different formats, with Foursquare sharing its tech in exchange for exposure, revenue or partnership deals, he explained. Facebook and Google haven’t teamed up with Foursquare due to competing products and because the Silicon Valley players have built up their own ecosystems, he said. But that’s a rare exception. Snapchat, Twitter, Uber, and Pinterest are using a version of its geotagging tech. Samsung’s new Galaxy S8 phone, launched in April, has Foursquare baked in to tell users where their photo was taken and what it was taken of. Finally, Apple is using Foursquare in its Apple Maps product.


Redfin set out to disrupt real estate—it was harder than it looked

Zillow and Trulia make money by referring customers to independent real estate brokers. Redfin, in contrast, aimed to disrupt the real estate business by becoming a real estate brokerage itself.

In a traditional real estate transaction, the agent on each side of the deal gets a three percent commission. Redfin offered a do-it-yourself model where buyers would do more of the work themselves, lowering Redfin’s costs and allowing it to pay thousands of dollars in rebates.

This approach sounded great in theory, but there was a big problem: customers hated it. Buying or selling a home is a complex, stressful, and often once-in-a-lifetime transaction. People wanted a personal agent who had plenty of time to understand their situation, answer questions, and guide them through the steps of the home-buying process. Redfin’s early approach—with an ever-changing cast of agents showing homes and writing offers but not doing much else—left most customers unsatisfied.

…some of the biggest opportunities for innovation were on the seller’s side of the market, because sellers ultimately set the terms of real estate transactions. And because home sellers tend to be older and more risk-averse, it has taken longer for Redfin to build up a customer base on the seller’s side of the market.


A look back in IPO: Google, the profit machine

Sources are saying that Microsoft was previously courting Google, pursuing options ranging from a kind of merger to an outright takeover. It appears that their overtures failed to materialize any deal, so now the Redmond will have to wait; Google is headed in the IPO direction, and if there’s a merger to be had, it’s likely going to be with a post-IPO Google.

“It’s still expensive at these levels,” said Will Dunbar, managing director with Core Capital Partners, a venture capital firm with no stake in Google. “There will be substantial competition in the near future and that’s one of the things that gives me pause about the price.”

Janco’s Pyykkonen adds that he was hearing it was difficult for traders interested in short-selling Google to find shares to borrow from the banks and brokers involved in the auction.

And according to an informal poll on CNN/Money, 85 percent of more than 23,000 respondents said that they did not plan on buying shares of Google once it began trading.

Inside Jeffrey Katzenberg’s plan to revolutionize entertainment on mobile screens

Katzenberg’s plan involves nothing less than the creation of a whole new species of entertainment targeting 18- to 34-year-olds: short-form video series produced with budgets and production values you might expect from primetime TV, along with top-shelf creatives on both sides of the camera. For example, imagine a drama akin to “Empire” or “Scandal” but shrunk to 10-minute episodes made for mobile consumption. Or a five-minute talk show, or a two-minute newscast — all with high-profile talent attached.

Disney CEO Bob Iger, whose company is considering producing for what Katzenberg has tentatively dubbed New TV, sees the merits in the idea. “The explosion of short-form video is obvious to all of us, but a lot of what we’ve seen is the production of amateurs — user-generated content,” Iger says. “Taking a professional approach to this kind of content, we haven’t seen that yet in a concerted way, and I think that’s a smart thing to try.”


Alphabet wants to fix renewable energy’s storage problem — with salt

It can be located almost anywhere, has the potential to last longer than lithium-ion batteries and compete on price with new hydroelectric plants and other existing clean energy storage methods. “If the moonshot factory gives up on a big, important problem like climate change, then maybe it will never get solved,” said Obi Felten, a director at X. “If we do start solving it, there are trillions and trillions of dollars in market opportunity.”

X is stepping into a market that could see about $40 billion in investment by 2024, according Bloomberg New Energy Finance. Roughly 790 megawatts of energy will be stored this year and overall capacity is expected to hit 45 gigawatts in seven years, BNEF estimates. Existing electrical grids struggle with renewable energy, a vexing problem that’s driving demand for new storage methods. Solar panels and wind farms churn out energy around midday and at night when demand lulls. This forces utilities to discard it in favor of more predictable oil and coal plants and more controllable natural gas “peaker” plants.

A new book ranks the top 100 solutions to climate change. The results are surprising.

The number one solution, in terms of potential impact? A combination of educating girls and family planning, which together could reduce 120 gigatons of CO2-equivalent by 2050 — more than on- and offshore wind power combined (99 GT). Also sitting atop the list, with an impact that dwarfs any single energy source: refrigerant management. Both reduced food waste and plant-rich diets, on their own, beat solar farms and rooftop solar combined.

Our models include a lot of things that were excluded from other models. One is land use. It’s given passing reference, but hasn’t been given much credibility by the IPCC. They don’t include, for example, farmland restoration — over a billion hectares of abandoned land all over the world. We know how to regenerate that, using animals, using cover, using no-till. Is there a transition cost? Yeah. But it’s a big sink.

First of all, let’s be honest: The US has never led in this area. Ever. When they’ve tried on an executive level, they’ve never been supported by Congress. States have led, cities have led, but never the federal government. Now the federal government is what it is. When [Trump] was elected, I went over every one [of the Drawdown solutions]. I said, “What can the [US federal] government do?” And it really isn’t that much.


The world’s first floating wind farm could be a game changer for renewable power

The first floating wind turbine has been placed about 20 km (12 miles) off the coast of Peterhead in Scotland. Another four turbines will be added to the farm, which together will generate enough energy to power 20,000 households.

Floating wind turbines cannot currently compete with fixed turbines, which have seen their cost plummet by more than 30% since 2012. However, Statoil believes that as floating wind farms are built at scale, they will soon be able to compete with traditional offshore wind turbines without subsidies.


It goes completely against what most believe, but out of all major energy sources, nuclear is the safest

Based on historical and current figures of deaths related to energy production, nuclear appears to have caused by far the least harm of the current major energy sources. This empirical reality is largely at odds with public perceptions, where public support for nuclear energy is often low as a result of safety concerns.

Whilst the share of energy production from renewable technologies is slowly growing, 96 percent of global energy production is produced from fossil fuels, nuclear and traditional biomass sources. Our global transition to renewable energy systems will be a process which takes time—an extensive period during which we must make important choices on bridging sources of energy production.

 

In fund management, churn is not necessarily burn

What may be more surprising is that we found no evidence of any relationship across all other styles of US equity fund, even in small-caps where the costs of trading are noticeably higher. On average, high turnover US equity funds have been able to add at least enough value to offset the additional transaction costs they incur. The moral is that pursuing a reduction in transaction costs without considering the consequences is misguided. Consistency between investment process and turnover is more important than the level of turnover itself.


Cities’ success leaves them vulnerable in the next downturn

But the specialization of high-end jobs and wealth in cities could end up being their undoing. The city model of old was like a grocery store — a balanced mix of all types of different products, from milk and bread to a pharmacy to some splurge items like cupcakes and Champagne. In tough times, cupcake and Champagne sales might fall, but people are still going to buy their milk, bread and toiletries, keeping the store afloat.

Cities today increasingly resemble endless aisles of Champagne and cupcakes. If tough times strike again — perhaps in a tech downturn, or in a stock market crash — the pain will be concentrated here. And while the well-paying white-collar jobs migrating to cities now are coveted, there’s no guarantee the best jobs will always be urban. The next economic cycle may well bring a different pattern.


Many Indians don’t know the real architect behind the country’s economic reforms

On that monsoon day in Hyderabad in 2015, no one could recall that a long-time inhabitant of that city, Pamulaparthi Venkata Narasimha Rao, PV as he was always known to the Telugus, was, in fact, the author of the most radical shift in India’s economic policy since Jawaharlal Nehru’s famous Industrial Policy Resolution of 1956. Nehru’s resolution had declared that India would strive to establish a “socialistic pattern of society”. In 1991 PV moved away from that pattern to unleash private enterprise.

PV was India’s first “accidental” prime minister, and a path-breaking one. He took charge of the national government and restored political stability; assumed leadership of the Congress, proving that there was hope beyond the Nehru-Gandhi dynasty; pushed through significant economic reforms; and steered India through the uncharted waters of the post-Cold War world.


NASA has a way to cut your flight time in half

…NASA will begin taking bids for construction of a demo model of a plane able to reduce the sonic boom to something like the hum you’d hear inside a Mercedes-Benz on the interstate. The agency’s researchers say their design, a smaller-scale model of which was successfully tested in a wind tunnel at the end of June, should cut the six-hour flight time from New York to Los Angeles in half.

Over the next decade, growth in air transportation and distances flown “will drive the demand for broadly available faster air travel,” says Peter Coen, project manager for NASA’s commercial supersonic research team. “That’s going to make it possible for companies to offer competitive products in the future.” NASA plans to share the technology resulting from the tests with U.S. plane makers, meaning a head start for the likes of Lockheed Martin, General Dynamics, Boeing, and startups such as Boom Technology and billionaire Robert Bass’s Aerion.