Curated Insights 2018.01.07

The $100 billion venture capital bomb

Son must deploy $20 billion, or a fifth of the fund, every year for the next five years to meet investors’ terms and their expectations in a market that many already consider overvalued.

Son explained to Hauser that there was a big new wave of computing coming — the sixth, in Hauser’s estimation, following on from the mainframe, the minicomputer, the workstation, the PC, and mobile. This next wave would automate processes in industrial manufacturing and on consumer devices. Son said Arm could uniquely capitalize on this new order as the leading processor manufacturer behind the Internet of things.

“This is the company,” Son said in a televised interview. “No one can live on the earth without chips — it’s in cars, refrigerators, everywhere. So if chips are the things everyone needs, and one company has a 99 percent market share, there must be a barrier. They’re not monetizing well enough. But if I own it, we can monetize it much better. I think the company is going to be more valuable than Google.”

Aside from its 95 percent domination of smartphones, Arm has 34 percent of the global processors market. There are currently 110 billion Arm processors in the world. The company has forecast a total of one trillion by 2035. As the applications get more advanced — be that a car, a washing machine, or a drone — they demand smarter processors, which are more expensive to produce in-house. “We price our fee at a tenth of the cost of what it would cost to develop it yourself,” Thornton notes. “So when you’re staring down the barrel of $100 billion and ten years to develop that processor yourself, we can say it will cost $10 billion from us and you can have it instantly. This is why we have expanded so rapidly over 20 years. One by one, design team by design team, we will become the processor of choice in those markets.”

“Arm Holdings has an insight into the future. When Arm makes a contract with a new business venture, providing the Internet of things for automobiles or farming, Arm will know what is in the pipeline for the Internet of things two years ahead.” SoftBank, in turn, gets a head start on funding companies for a market that doesn’t yet exist.

Analysts say SoftBank, which declined to comment for this article, is at work on vertical integration: Foxconn builds devices, Arm supplies the chips, and SoftBank-owned Sprint and OneWeb, an Internet satellite company, operate the networks on which the devices run. Vision Fund portfolio companies will reap the benefits of these partnerships. SoftBank sits in the middle, introducing high-growth prospects from the fund to one another and to the infrastructure on which their success rides.

Units of time are the new currency

Buffett’s not wrong, but technology has changed the nature of competition. While businesses were once considered only as valuable as the dividends they paid out, the “impenetrable” moats that let companies spit off excess cash are dwindling. A moat today is simply a temporary buffer that helps a company get ahead of the next innovation cycle. When you compound time, you’re creating and recreating value faster than the current innovation cycle.

This is the formula for compounding time into a utility and beyond: 1) Reduce friction for your customers and yourself. Use the time you save to build your utility. 2) Compound time by investing in the ecosystem and getting other companies to integrate with your product. Other companies will integrate with you to save themselves time, building on top of your platform and giving you time to invest in the next great business. 3) Buy other people’s time to defend your utility and stay relevant. Smartly acquiring new products helps you maintain your utility.

Jeff Bezos: “All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions.” While this created more work in the short-term, it broke Amazon down into hundreds of micro-services that communicated via APIs. By making all services accessible via API, Amazon drastically reduced the time it took to deploy new features and functionality.

Google’s machine-learning algorithms are reportedly five to seven years ahead of the competition. By keeping TensorFlow to itself, Google would have maintained its lead time — similar to how moats are created by stockpiling assets. But by taking the opposite approach and giving TensorFlow away for free, Google created a utility.

Building a traditional moat will be antithetical to building a great business. The only way to survive is to extract the core of your business and spread it out to compound returns on time. First, you have to save time for your customers and even yourself. Then, you have to invest it forward by co-operating with other products in your ecosystem. Finally, you have to acquire new innovation to maintain your lead.


Why has Waymo taken so long to commercialize autonomous taxis?

To estimate the rate at which passengers will tolerate autonomous taxi errors, we analyzed the manually driven car statistics to set the hurdle. On average human driven cars break down roughly once every 50,000 miles and crash once every 240,000 miles,2 thus offering perspective on acceptable tolerance rates for autonomous vehicle SIFs and UFs.

Supporting this hypothesis, its cars seem to have had difficulty making left turns. One possible explanation is that it has chosen not to vertically-integrate, outsourcing vehicle production to partners like Fiat Chrysler and then taking engineering shortcuts by integrating its sensor suite into a product manufactured away from its controls. In contrast, Tesla’s and Cruise Automation’s (GM) manufacturing operations are vertically-integrated, which could become an important source of competitive advantage.

We are skeptical of that negative conclusion for a number of reasons. Today, Waymo probably is trying to maximize its failure rate to identify faults and root them out. Some stretches of road are trickier and some intersections more difficult to navigate than others.

Getting my fix of Starbucks

SBUX has been successful engendering loyalty from its customers as well- Starbucks Rewards has 13.3mm members in the US and an incredible 36% of all dollars tendered in the stores is transacted through the loyalty program (US Company operated stores).

In the US- the average new SBUX location generates revenue of $1.5mm (average unit volume or AUV) and generates a year 1 store profit margin of 34% or $510k. Based on an average store investment of $700k in the US, this results in an ROI of ~75%. Compare this to a McDonalds with an ROI of ~30%, an average fast casual operator at ~40% or even Chipotle (at its peak before the food illness issues) at ~70%. This means that the average SBUX store earns back its investment a third of the way into its second year – very compelling unit economics. The math likely changes with higher investments in Reserve stores and premium Roasteries in the coming years but if these seek to elevate the overall SBUX experience and thus drive pricing power through the entire system, it’s the right move for the long term.

Starbucks is a well-positioned company led by a smart management team playing “the long game”. While store growth in more mature markets and continuing competition in premium coffee may be a drag to future growth, Starbucks benefits from a moat in the form of a strong brand and a loyal, repeat customer that can be extended into more markets and into more than just coffee. And I believe that this moat is sustainable under the right leadership team that understands that Starbucks delivers an experience that extends far beyond just selling coffee. The sustainability of the moat is predicated on continued investment to elevate the store experience and thus drive pricing power. Management has demonstrated a willingness and enthusiasm to invest and has ample runway to do so while also rewarding shareholders with share repurchases.

How big tech is going after your health care

Now, as consumers, medical centers and insurers increasingly embrace health-tracking apps, tech companies want a bigger share of the more than $3 trillion spent annually on health care in the United States, too. The Apple Heart Study reflects that intensified effort.

Each tech company is taking its own approach, betting that its core business strengths could ultimately improve people’s health — or at least make health care more efficient. Apple, for example, has focused on its consumer products, Microsoft on online storage and analytics services, and Alphabet, Google’s parent company, on data.

Last year, Facebook made it more appealing for pharmaceutical companies to advertise their medicines on the platform by introducing a rolling scroll feature where drug makers can list their drug’s side effects in an ad. Such risk disclosures are required by federal drug marketing rules.


Western Digital, Nvidia on board with ‘RISC-V,’ so pay attention, says Benchmark

Any investor interested in learning how adoption of RISC-V stands to disrupt the CISC and RISC processor domains, including discrete processors and/or processor IP (cores and architectures) embedded within simple MCUs as well as advanced ASICs. Additionally, RISC-V stands to disrupt R&D development roadmaps for merchant and captive SoC companies. For example, if Western Digital truly intends to adopt RISC-V in storage products, Marvell will need to reconsider usage of Arm cores. This could lower the upfront licensing and royalty costs for Marvell; however, it may require a revamping of Marvell’s storage controller design flow. Processor IP companies such as Arm Holdings, Synopsys, Cadence Design, Imagination Tech and even CEVA, Inc. could see an impact.

China removes 1,400 baby formula products from shelves

The regulations, effective Jan. 1, require factories making formula to register those products with China’s Food and Drug Administration and pass safety inspections. Plants are limited to working with three brands, and those brands can make only three different products each. China’s FDA has approved 940 infant-formula products from 129 factories so far, the agency said. That compares with more than 2,300 formulations available to parents before Jan. 1.

That vaulted Nestle, Danone and Reckitt Benckiser Group Plc into the top spots in the $20 billion market, according to Euromonitor International.

Capturing those families will be crucial. With the relaxation of China’s one-child policy, Reckitt Benckiser anticipates about 20 million babies being born annually, which could trigger an annual growth rate of at least 7 percent in the infant-formula category during the next five years, said Patty O’Hayer, a spokeswoman. The company bought Mead Johnson for $16.6 billion last year, and its Enfa and Enfinitas brands were approved for sale. Asia generated half of the Enfa lineup’s $3.7 billion in sales for 2016.

The Paris-based company wants to deploy technology such as laser printing to make tampering more difficult and QR codes to ensure traceability of a product back to the factory — moves intended to assure Chinese parents concerned about food safety.

Cancer deaths fall to lowest rate in decades

While a number of breakthrough, high-cost drugs have improved the outlook for people with some deadly cancers, the biggest cause of the decrease in deaths is that Americans are smoking less. The report found decreased smoking rates, and improved detection and treatment, have led to sharp declines in the rate of lung, breast, prostate and colorectal cancer deaths.

How blockchain technology is redefining trust

‘Regulators will like that blockchain-based transactions can achieve greater transparency and traceability– an “immutable audit trail”,’ Masters says. In other words, it could help eliminate the kinds of fraud that come from cooking the books.

How do typical loans work? A bank assesses the credit score of an individual or business and decides whether to lend money. The blockchain could become the source to check the creditworthiness of any potential borrower, thereby facilitating more and more peer‑​to‑​peer financing.

Consider traditional accounting, a multi-billion industry largely dominated by the ‘big four’ audit firms, Deloitte, KPMG, Ernst & Young, and PwC. The digital distributed ledger could transparently report the financial transactions of an organization in real time, reducing the need for traditional accounting practices. And that is why most major players in the financial industry are busy investing significant resources into blockchain solutions. They have to embrace this new paradigm to ensure it works for, not against, them.

In the patent, Goldman describes SETLcoin as having the potential to guarantee ”nearly instantaneous execution and settlement“ for trades. It would mean all the capital the bank is required to keep in reserve, to hedge against the risk of transactions if they don’t settle, would be freed up.

The blockchain raises a key human question: How much should we pay to trust one another? In the past year, I’ve paid my bank interest and fees, some hidden, to verify accounts and balances so that I could make payments to strangers. I’ve spent thousands of dollars on lawyers to draw up contracts because I am not quite sure how another person will behave (and to sort out a few incidents where trust broke down). I’ve paid my insurance company to oversee the risk around my health, car, home, and even life. I’ve paid an accountant to reconcile an auditing issue. I’ve paid an estate agent tens of thousands of dollars essentially to stand between me, the prospective buyer, and the current owner to buy a house. It would seem we pay a lot for people to lord over our lives and double-check what’s happening. All these ‘trusted intermediaries’ are part of the world of institutional trust that is now being deeply questioned.

Today, it is circa 1993 for blockchain technologies. Even though most people barely know what the blockchain is, a decade or so from now it will be like the internet: We’ll wonder how society ever functioned without it. The internet transformed how we share information and connect; the blockchain will transform how we exchange value and whom we trust.


Bitcoin-is-Worse-is-Better

It’s not the decentralized aspect of Bitcoin, it’s how Bitcoin is decentralized: a cryptographer would have difficulty coming up with Bitcoin because the mechanism is so ugly and there are so many elegant features he wants in it. A cryptographer’s taste is for cryptosystems optimized for efficiency and theorems; it is not for systems optimized for virulence, for their sociological appeal. Centralized systems are natural solutions because they are easy, like the integers are easy; but like the integers are but a vanishingly small subset of the reals, so too are centralized systems a tiny subset of decentralized ones. It may be that Bitcoin’s greatest virtue is not its deflation, nor its microtransactions, but its viral distributed nature; it can wait for its opportunity. If you sit by the bank of the river long enough, you can watch the bodies of your enemies float by.

Gyms ditch machines to make space for free weights

In recent years the 420-location chain has scaled back cardio and weight machines to 50% of floor space from about 66%. The gym devotes the other half of floor space to free weights and functional training, which includes things like kettlebell swings and body-weight exercises with TRX suspension straps. It has also expanded its studio group-exercise classes.

“I prefer to do classes, because the teacher pushes me farther than I would push myself,” she says. “I get bored on cardio machines or on the weight machines.”

The shift away from machines is even more pronounced overseas. In 54 gyms of varying price levels in the U.K., members’ time spent on cardio machines dropped 7% between 2013 and this year, even as the total number of gym visits increased, according to an analysis from Edinburgh-based tracking firm GYMetrix.

The Remarkable Early Years of Warren Buffett (Part 1)

The risks of buying a home that’s too big

“The biggest house isn’t necessarily the best house or even the best investment. An older, smaller home with a shorter commute, bigger lot or greater remodel potential may appreciate more. In fact, many fancy new homes can lose value quickly if a developer builds newer homes nearby, while older areas may have more enduring land value.”

“You want enough space to live comfortably, but you don’t want to heat, clean and pay taxes on space you aren’t utilizing.”

Long-term returns. The money saved in buying a right-size home could pay dividends in the future—literally. A $20,000 savings each year over the life of a 30-year mortgage could result in a nearly $1.2 million nest egg if invested in a stock market portfolio earning 4% a year, Ms. Adam says. The annual savings, when compounded over time, is likely to exceed the appreciation in your home’s value over the term of the mortgage.

Curated Insights 2017.10.08

Alibaba’s Cainiao fee potential huge, loss ‘negligible’?

Most investors know Cainiao for its data and software business. This has been a critical element behind the success of BABA and eCommerce adoption in China, addressing several friction points in the logistics supply chain. Key issues include China not having a reliable postal code system and the systems dependence on paper weigh bills. Data is scattered, non-standardized and assets are highly fragmented (over 90% of logistics vehicles in China are owned by individuals). Cainiao’s Data Intelligent Network was built to utilize data and technology to coordinate resources across a vast supply chain. In just a three year time frame, adoption of eShipping labels has grown from single digits to +70% and is approaching ubiquity. This is enabling real-time data and tracking across the entire delivery chain…”

“… While Cainiao is seeing tremendous growth providing fulfillment services to merchants, we see potential for an Fulfillment By Amazon (FBA)/Prime-like flywheel with closer alignment of Cainiao and Tmall. We estimate that Amazon.com charges merchants 16% of GMV [gross merchandise value] on average for FBA services, compared to Tmall commissions at 2.2% of reported GMV last year…”


Amazon’s war to the door

Even without mass purchases of jets, trucks and couriers, the package preparation and delivery process is growing more expensive for the company. Amazon’s fulfillment costs — the company’s spending on packaging-and-distribution centers and related expenses – were $8.87 billion in the nine months ended Sept. 30, or 12.4 percent of the company’s net sales in the period. In 2012, they were 10.5 percent of net sales. Amazon’s costs for shipping are also creeping up, from 8.4 percent of revenue in 2012 to 11.7 percent in the three months ended Sept. 30.


Why restaurants hate GrubHub Seamless

Seamless takes a percentage, not a flat fee, of the total food and beverage amount, even though its involvement is the same whether an order is for $10 or $250. When you search for restaurants on Seamless, you may have noticed that, in the default view, the results appear to be random, but they’re actually arranged by who paid what. The more results there are, the harder it is for a restaurant to stand out—which makes restaurants likelier to pay more to increase their exposure.

“Their sales rep makes it perfectly clear that you need to pay a minimum of 20% to exist, and the more you pay, the more you appear in the first pages. Even by paying over 30%, we’re only on the second or third page. So some restaurants pay even more than that! But we could feel the difference when we jumped from 15% to over 30%: We multiplied by 10 our orders from day 1. We don’t make money on Seamless, however. Thirty percent is our break-even point. But it’s helpful for marketing—maybe a customer will try us and then come back in person. I don’t know why anyone would pay anything other than the minimum, because what’s the point of paying 17% to get on the seventh page of results?”

Tech giants play the Game of Thrones

Facebook has pulled off this incredible hat trick with what is arguably the best acquisition in technology in the past 20 years, and that’s Instagram. At the time, people were saying that the child-CEO has really screwed up here and paid $1 billion for a company with only 19 people. By most standards, if you try to value Instagram now, it’s probably worth somewhere between $60 billion and $150 billion. So it has put an afterburner effect on the company, as has likely WhatsApp. They keep finding growth.

If we were to look at everything you have ever put in that search query box, we would probably come to the conclusion that you trust Google more than any priest, rabbi, boss, mentor, coach, professor. If something goes wrong with your kid, your whole world stops. You start praying and you look for some sort of divine intervention that sees everything and then sends you back an answer. Will my kid be all right? So you type “symptoms and treatment of croup” into Google. We trust Google more than any other entity. It is our god.

The way you identify an industry ripe for disruption is you look at whether the price increases are greater than inflation and justified with underlying innovation. The one industry that is most ripe for disruption is education. I think Apple’s roots in education give it unbelievable license to go into that business. I mean, my class generates $160,000 in tuition for each night I teach. They don’t pay me that much. My agent, NYU, takes a 97% commission on that. But when you think about that, it’s ridiculous, and it has some very negative outcomes for our society in the form of debt on young people. So what could Apple do to really change their role and to think different? Start the largest creatively driven low-cost university in the world.

Margrethe Vestager, the commissioner on competition in the European Union, seems to be the only regulator in the world who is levying real fines against these people. You are going to see the first $10 billion-plus fine against one of these four companies in the next 12 months, and it is going to come out of Europe. The real estate isn’t going up in Hamburg. It’s going up in Palo Alto. America gets a lot of the benefits of these four companies, with some of the downside. Europe gets all of the downside and not much upside. The war is going to start, as it has throughout history, on the continent of Europe.

 

Bulldozers can show you where the economy’s going before the official data do

It’s released around the tenth of each month, faster than almost any other economic data. For Japan, the figures have a good correlation with industrial production data, which shows the output and sales of the nation’s industrial giants like Toyota Motor Corp., Mitsubishi Heavy Industries Ltd., and Komatsu itself.

The company collects data from about 140,000 machines in operation in Japan, 110,000 in China, 50,000 in Europe and 70,000 in North America. Rival Caterpillar Inc collects the same kind of data but doesn’t disclose it due to its customer contracts, according to a company spokesperson in Japan.

“It does work as a reference point,” said Yoshikazu Shimada, an analyst at Tachibana Securities Co. in Tokyo who covers Komatsu. “It shows data on public sector works, and data on China especially affects the global economic overview. Komtrax is part of the data that shows you what state the world economy is in.”


Warren Buffett and truck stops are a perfect match

It was No. 15 on the Forbes list of America’s largest private companies, and the chain’s 750 locations across North America generate more than $20 billion of annual revenue.

In fact, gas-station chains are known to have the kind of stable, predictable earnings and business longevity (perhaps even in a self-driving-truck world) that Buffett seeks in takeover targets. Their margins on gas sales go up when oil prices drop. And as fuel margins became more volatile over the past year, the major chains have turned to acquisitions to gain scale and reduce that volatility, as well as spending to upgrade locations.

This is why it makes sense for Pilot Flying J to have the financial backing of Berkshire amid the competitive pressure. Alimentation Couche-Tard Inc., the owner of Circle K, has been scooping up convenience-store businesses in Europe and North America, such as CST Brands for $4.4 billion in a deal that closed in June. Earlier this year, Seven & i Holdings Co., owner of 7-Eleven, bought about 1,100 Sunoco shops and gas retailers to expand its U.S. footprint.

Will new tariffs dim the solar-power boom?

Solar power generates only a pittance of U.S. electricity—about 1%. But it’s growing at a furious rate, accounting for 39% of new electricity generation in the U.S. last year, more than any other source. From 2010 to mid-2017, the total installed solar capacity in the U.S. leaped from 2.3 gigawatts to 47.1 gigawatts, enough to power 9.1 million homes, according to the Solar Energy Industries Association, or SEIA, a trade group. That boom was fueled by government subsidies and a decline in the price of solar cells, which have dropped 40% since the start of 2015.

Petri says tariffs would do more harm than good because they will drive up cell prices. “Will that add jobs? Not likely,” he wrote. “High tariffs will just raise the prices of imported panels and kill installation jobs.” While the industry employs about 260,000 people, 65% of those are in installation or sales, according to a 2016 report issued by the nonprofit Solar Foundation. Only 38,000 work in manufacturing. Because of that imbalance, tariff opponents say it’s much more likely that tariffs will hurt overall U.S. employment than help it.

But couldn’t tariffs persuade Chinese manufacturers to shift production to the U.S., thus boosting employment? Petri is skeptical, particularly because the tariffs are temporary. Foreign manufacturers won’t spend money on building U.S. factories that will become obsolete so fast, he argues.

First Solar’s thin-film technology has always been cheaper than silicon, and the company is launching a new series of panels that will be even more cost-effective. If tariffs raise the price umbrella of competing silicon modules, First Solar can raise its own prices and still go to utility-scale developers and offer to rescue their stranded projects with its thin-film panels. Every penny of these price boosts would fall to its bottom line, and it could demand equity in those projects.


Europe hits Ireland over $15B in unpaid Apple taxes; Luxembourg liable for $294M in Amazon taxes

“Ireland has to recover up to 13 billion euros in illegal State aid from Apple,” she said, referring to this 2016 ruling on the tax issue for the most valuable tech company in the world, which Ireland had appealed. “However, more than one year after the Commission adopted this decision, Ireland has still not recovered the money, also not in part. We of course understand that recovery in certain cases may be more complex than in others, and we are always ready to assist. But Member States need to make sufficient progress to restore competition. That is why we have today decided to refer Ireland to the EU Court for failing to implement our decision.”

“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon’s profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules,” she said in a statement. “This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others.”

Yes, You get wiser with age

Empirical studies have shown that older people are better than younger ones in terms of control over emotion, knowing themselves better, making better decisions that require experience, and having more compassion and empathy towards others.

There are quite a few strategies, and again, these are for successful physical aging, cognitive aging, psychosocial aging. There is strong evidence in favor of them. One is calorie restriction. Second is physical activity, exercise. Very important. Even people in wheelchairs can have some physical activity. Then there is keeping your brain active, do something that is somewhat challenging. Not too stressful, but somewhat challenging. There is socialization, an appropriate degree of socializing. Then comes attitude and behavior, resilience, optimism, compassion, doing things for others, volunteering activities. What they do is they give a purpose to life, and that makes you happier. And there are other strategies like meditation for reducing stress.

Curated Insights 2017.07.02

Too hot to fly? Climate change may take a toll on air travel

Hotter air is thinner air, which makes it more difficult — and sometimes impossible — for planes to generate enough lift.

As the global climate changes, disruptions like these are likely to become more frequent, researchers say, potentially making air travel costlier and less predictable with a greater risk of injury to travelers from increased turbulence.

A no-fly window of even a few hours at a particular airport could have a ripple effect across airline operations while further squeezing airlines’ already tight profit margins.

Home Capital, WTF just Happened?

This deal bought Buffett a favour from the government for upcoming infrastructure investments. He meet with PM Trudeau and Finance Minister Morneau just before this deal.

Buffett sees a Canadian house crash coming. By taking a 38% stake in a tiny bank that he can keep capitalized through a crash, this gives him a vehicle to buy some of the larger banks if/when they run into trouble. Say housing is down 50% in Canada (which is how much I think housing drops); my personal view is that CIBC is in big trouble in that scenario. BRK, through HGC, can buy CIBC. That would be a meaningful investment, and it breaks BRK into the profitable Canadian banking oligopoly. By owning 40% of HCG, perhaps Buffett can get around any foreign ownership restrictions when looking to buy some or all of a Big 6 bank.

Rigetti Computing

But quantum computing — which unlike classical computing, is based on nature’s more complex operating system of quantum mechanics — will take the world by surprise. Even established veterans of the first few computing revolutions could be caught off guard, unable to foresee the jump from impressive demo to devastatingly impressive production machine. How so? Because it turns out that quantum computing has its own Moore’s law, and that law takes exponential scaling to a whole new level.

In the quantum hyperscaling Moore’s Law, the speed of a quantum computer is exponential in the number of coherent quantum elements or “qubits” — that is, 2^q. But successfully incorporating technological advances in using silicon technology would enable the qubits themselves to follow Moore’s law (q = 2^n)… making the resulting performance power of the quantum computer 2^2^n. This means that the performance of quantum computing is exponentially more rapid than Moore’s Law. It’s as if Moore’s law itself sped up like Moore’s law.

Morgan Stanley: Cloud computing is at ‘an inflection point’ — but how big will it get?

“That 20 percent is a very important number because if you look at other adoption cycles, whether it’s notebooks, smartphone penetration, the x86 server, even digital music and video games, when you get to that 20 percent penetration point, that curve inflects and growth accelerates.”

The real threat of artificial intelligence

Unlike the Industrial Revolution and the computer revolution, the A.I. revolution is not taking certain jobs and replacing them with other jobs.

This transformation will result in enormous profits for the companies that develop A.I., as well as for the companies that adopt it.

The solution to the problem of mass unemployment, I suspect, will involve “service jobs of love.”

…most of the money being made from artificial intelligence will go to the United States and China. A.I. is an industry in which strength begets strength…

While a large, growing population can be an economic asset, in the age of A.I. it will be an economic liability because it will comprise mostly displaced workers, not productive ones.

Ends, Means, and Antitrust

…the U.S. is primarily concerned with consumer welfare, and the primary proxy is price. In other words, as long as prices do not increase — or even better, decrease — there is, by definition, no illegal behavior.

The European Commission, on the other hand, is explicitly focused on competition: monopolistic behavior is presumed to be illegal if it restricts competitors which, in the theoretical long run, hurts consumers by restricting innovation.

Market dominance is, as such, not illegal under EU antitrust rules. However, dominant companies have a special responsibility not to abuse their powerful market position by restricting competition, either in the market where they are dominant or in separate markets. Otherwise, there would be a risk that a company once dominant in one market (even if this resulted from competition on the merits) would be able to use this market power to cement/further expand its dominance, or leverage it into separate markets…

Lessons From the Collapse of Banco Popular

Don’t trust bank stress-test results.

Regulators should require banks to maintain higher leverage ratios, another measure of capital adequacy. And yet this is a regulatory requirement the Trump administration wants to loosen.

Don’t reach for yield if you’re not ready for the risk.

Roadmap for MSCI Emerging Markets Index inclusion

China A: MSCI inclusion decision

China represents roughly 17% of global GDP, 11% of global trade, and 9% of global consumption but today comprises only a 3.5% weight in the MSCI ACWI Index