Archived Posts for May 2023

Weekly Report: May 28, 2023

Observations

Soft Landing?

Inflation is coming down, but I remain skeptical that we’ll get a soft landing.

A soft landing supposes that, by keeping interest rates roughly where they are, inflation will start to moderate back down to its 2% target and low unemployment and positive productivity growth will be maintained. Paul Krugman suggests things will be more resilient than the doom and gloom suggest.

But interest rates have skyrocketed in the last 12 months, after more than a decade of ZIRP and a generation of workers who haven’t experienced an environment in which money was not cheap.

Rate rises have never occurred so quickly in history, and I don’t think they’ve had a chance to bite. The longer you keep rates at this level, the longer the situation gets worse for people and businesses who are sensitive to rate rises. People are not used to interest rates being over 1%, much less over 5%. The effects of high rates should eventually flow through in the form of increased bankruptcies, defaults, and restructurings. The regional banks aside, we haven’t seen much of that yet, but it doesn’t gel with me that whoever levered up to the gills in the last few years isn’t going to face some sort of reckoning when their interest rates have suddenly multiplied. It will take some time to play out.

We’re already seeing some signs of stress.

Credit card debt did not decline in Q1 like it normally does and delinquencies are rising. The commercial real estate market is a ticking time bomb. The regional banking crisis is still lurking in the wings.

Economic cycles have tended to consist of periods of gradual growth followed by short and sharp declines. I’m not sure why it would be different this time when the powder keg is so large. Eventually, something will spark a prolonged panic and precipitate the next recession.

And maybe we’ll see cycles that are more volatile — a sudden slowdown could push the Fed to cut rates back down to zero again in a knee jerk reaction, and you end up with an economy in pilot-induced oscillation (“when the airplane begins a departure from the desired flight path, and the pilot applies inappropriate, excessive or mis-timed corrections that result in ever-increasing excursions that threaten to force the airplane out of control”).

Perhaps something at play is that things happen so fast these days, and attention spans are short. The lack of bad things happening quickly might be interpreted as a sign that the bears are forever crying that the sky is falling, but we’re actually on a path to recovery.

I just don’t see it happening.

Further Observations

• Ron DeSantis launched his presidential campaign on Twitter Spaces in a conversation with Elon Musk and David Sacks. As is common for Musk’s events, it started late and then just got more awkward as the servers overloaded.
• Uber’s Chief DEI Officer was placed on leave after a couple “Don’t Call Me Karen” talks she hosted went sideways after various employees felt antagonized by what she said. Things feel a bit out of control, and it’s telling that I don’t really feel comfortable publicly expressing a view what was said, knowing that it could come back to bite me at some stage. All I’ll say is that this chilling effect on speech isn’t a good outcome.
• This was NVIDIA after earnings release on Wednesday. That stratospheric price reflects $180B+ of market cap added in the space of an hour, all because of AI. (Only Apple and Amazon have recorded larger one-day increases.) Its PE ratio is now over 200.

Articles

• Caroline Ellison: How a young math whiz with an appetite for risk became a major player in Sam Bankman-Fried’s corrupt crypto empire (Forbes)
• Here’s What Happens When Your Lawyer Uses ChatGPT (New York Times)
  LOL
• Elon Musk’s Neuralink says it has FDA approval for human trials: What to know (Washington Post)
• Young adults in the U.S. are reaching key life milestones later than in the past (Pew Research)
• Why Are Teens in Crisis? Here’s What the Evidence Says (New York Times)
• What makes a standing ovation last 22 minutes at Cannes? (ABC News)
• A day in the life of a woke third-grade teacher, as imagined by a far-right politician (McSweeney’s)

Movies & TV

• The Unbearable Weight of Massive Talent
  Kind of entertaining? ★★½
• The Book of Boba Fett (Season 1)
  Companion mini series to The Mandalorian. More of the same. ★★★

Charts, Images & Videos

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Weekly Report: May 21, 2023

Observations

The Debt Ceiling

The Republicans are playing chicken with the debt ceiling again. It’s a travesty how the system works here – namely, that the budget is approved by Congress first, and then as a separate step, Congress has to approve raising the debt ceiling so that the U.S. Treasury can issue new debt to pay for the spending that Congress already approved. This process is almost unique in the world. (Denmark is the other country that works this way, but they don’t practice brinkmanship over there.)

It’s almost impossible to imagine Congress actually taking things over the precipice, but no one is 100% absolutely sure that won’t happen, even though the consequences would be catastrophic if the U.S. were to default on its debt.

• After months of President Biden effectively saying that he wouldn’t negotiate with terrorists who were holding the debt ceiling hostage, it’s telling that he is now negotiating. Clearly, there’s pressure from the Democrats who think the Republicans might let things go too far.

“X-date” is the deadline where the government effectively runs out of money. It fluctuates because it depends on day-to-day tax revenue collected and spending, but “as early as June 1” is the guidance that the Treasury has given.

• The last time things got this down to the wire was in 2011 when the debt ceiling was raised with potentially only a day or two before the government ran out of money. In response, S&P downgraded the U.S.’ credit rating from AAA (the highest) to AA+. In the month leading up to the resolution of the crisis, the stock market fell 17%.
• U.S. Treasury Bonds are regarded as “risk free” assets (or the closest thing you can have to risk free) given the reserve status of the U.S. dollar, the fact that the U.S. economy is the largest in the world, and the ability for the U.S. government to print more money at will. If the U.S. were to default on its debt, it would be entirely self-inflicted.

Interestingly, the market is not reacting like it did in 2011, staying relatively buoyant despite June 1 being a little over a week away. This means the market is expecting things will be resolved before x-date. It has been observed that this means that insurance against a debt default is selling for cheap. This insurance comes in the form of put options on the S&P index (via an S&P index ETF), or alternatively call options on the price of gold or against the VIX (volatility index).

• On May 18, one unit of SPY (an S&P index ETF) was about $415 (about the same as where it was a month ago). A put option on SPY expiring on June 2 at a strike price of $385 (~7% under the ETF’s current value), was selling for $0.40. Should SPY decrease by 17% (the same as in 2011) over the next 2 weeks to $345, the option would return about $40 for a ~100x return. This has not gone unnoticed.

One potential solution to the crisis, where the U.S. Mint mints a $1 trillion coin and deposits it in the Federal Reserve’s Treasury account, has been taken off the table by Treasury Secretary Janet Yellen. As explained by Wikipedia: “The concept of striking a trillion-dollar coin that would generate one trillion dollars in seigniorage, which would be off-budget, or numismatic profit, which would be on-budget, and be transferred to the Treasury, is based on the authority granted by Section 31 U.S.C. § 5112 of the United States Code for the Treasury Department to “mint and issue platinum bullion coins” in any denominations the Secretary of the Treasury may choose. Thus, if the Treasury were to mint one-trillion dollar coins, it could deposit such coins at the Federal Reserve’s Treasury account instead of issuing new debt.”

Further Observations

• Michael Lewis’ book on Sam Bankman-Fried is called Going Infinite and it will be released in October. I’m looking forward to it.
• Sometimes I’m so exhausted that I fall asleep putting my kids to bed and end up waking up a few hours later at around 11pm. After shaking off the wooziness, I then spend the next few hours relatively clear-headed and productive, catching up on emails, work, and household admin, before heading back to bed at around 2am or 3am. I was worried that this messed up schedule might become a bad habit, but it turns out that it’s a natural sleep pattern called biphasic sleep that was common in medieval times: “A couple of hours later, people would begin rousing from this initial slumber. The night-time wakefulness usually lasted from around 23:00 to about 01:00, depending on what time they went to bed. It was not generally caused by noise or other disturbances in the night – and neither was it initiated by any kind of alarm … The period of wakefulness that followed was known as ‘the watch’ – and it was a surprisingly useful window in which to get things done. ‘[The records] describe how people did just about anything and everything after they awakened from their first sleep,’ says Ekirch. … One servant Ekirch came across even brewed a batch of beer for her Westmorland employer one night, between midnight and 02:00.” That makes me feel a bit better.
• A Berkeley student commuted from Los Angeles for an entire academic year. He did this ostensibly to avoid paying rent in the Bay Area (he had free accommodation in LA). From a pure money perspective, the numbers checked out. From a practical perspective, well… His daily commute averaged 4-5 hours each way, and involved a car, plane, and BART ride. He managed to schedule his classes so he only had 3 days a week for most of the year, but during some periods he did have a 5 day week. On some days, he needed to wake up before 4am to catch his flight, and some days his flight back departed at 9pm. But, he managed to make it to every class, every day. The sheer planning and discipline involved, and fortune to not be impacted by delayed or canceled flights, is impressive. He breaks everything down in this great Flyertalk post. There was a 6-month period of my life when I was commuting at least 5 hours a day, every weekday, and I swore I’d never do that again. (Standing in a hot un-air conditioned train for an hour every day is not fun. I once fell asleep while standing up.)
• Here’s how one of his days looked:
  
  “8/11/2022 Thursday LAX-SFO-LAX
  AS3342 LAX-SFO E175 $5.60+5000 AS miles
  AS3435 SFO-LAX E175 $5.60+5000 AS miles
  Leave home 410am
  Car Parked 436am
  Reach Airport 456am
  Flight Departs 600am
  Flight Arrives 745am
  BART Departs 935am
  BART Arrives 1047am
  Arrive Class 1100am
  [4 hours 20 minutes at class]
  Leave Class 320pm
  BART Departs 333pm
  BART Arrives 448pm
  Flight Departs 623pm
  Flight Arrives 757pm
  Airport Landside 804pm
  Reach Parking Lot 822pm
  Arrive Home 858pm
  
  That’s when I started questioning myself: 6am flight everyday, is it really worth it? Especially given that I only slept 4.5hrs the night before. But anyways, once I boarded, I slept like a baby until we reached SFO.”

Articles

• What if San Francisco never pulls out of its ‘doom loop’? (Financial Times)
• California Is Losing Population and Building New Houses, So Why Aren’t Home Prices Coming Down? (KQED)
• Students are increasingly refusing to go to school. It’s becoming a mental health crisis. (USA Today)
• TikTok creators use AI to rewrite history (Rest of World)
• What It Takes to See 10,000 Bird Species (Outside)
• Hurricanes of Data: The Tiny Craft Mapping Superstorms at Sea (New York Times)
• ‘We Didn’t Have a Choice’: One Family’ Perilous Escape From Venezuela to NYC (Bloomberg)
  While trekking across the Darien Gap—a 66-mile stretch of dense, mountainous jungle between Colombia and Panama—the family was robbed by men carrying guns and machetes.
• Rabbit Test (Samantha Mills in Uncanny Magazine)
  Worthy winner of the 2023 Nebula Award for Best Short Story.

Charts, Images & Videos

Look at that inverted yield curve:

Now let’s zoom out further…

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Weekly Report: May 14, 2023

Observations

Mycology

I’m somewhat embarrassed to have only discovered the amazing library system in our part of the Bay Area. There is a small offshoot branch of the main city library about 2 minutes’ drive from our house that has a great selection of new releases and children’s books. And, through that library, I can request books online from any of the dozen or so other libraries in the same system. They ship the book to my local branch and notify me when it’s ready for pickup. They seem to get all the major new releases. Self-checkout is simple — they have a neat scanning machine where you pile all the books you’re checking out on top of the checkout surface. The machine detects all of them and deactivates the security tags in one fell swoop. The books are initially lent for 3 weeks, but as long as no one has a hold placed on them, the library will automatically renew them for you. They let you check out 50 books at a time! I visit with my daughter every second Saturday.

Anyway, the library is not what this post is actually about. While at the library, I picked up a field guide to identifying mushrooms (on a total whim) and learned a few things, including what a “spore print” was. Basically, it’s a method of identifying mushrooms by observing the attributes of the spores they drop, such as their color and drop pattern.

I tried to make one. It’s easy: I bought a portabella mushroom from the supermarket, cut the stem, placed it gills down on a piece of paper and covered it overnight with a glass container. The next day, you get your spore print on the paper. (And if you spray it with a fixative, like hair spray, you have something you can hang on the wall.) Below was the result:

I also learned that portabella mushrooms are the same species of mushrooms as white mushrooms, button mushrooms, and cremini (brown) mushrooms — all supermarket staples.

Mushrooms are just one part of a fungus. Similar to an apple on an apple tree, mushrooms are the fruiting body for the underlying mycelium (a threadlike network that exists in soil or a substrate like wood) that makes up the rest of the fungus. Mushrooms are the way fungi reproduce, since they are basically receptacles for dispersing spores.

Mushrooms are incredibly diverse, but I was particularly intrigued by giant puffballs. They can grow larger than a soccer ball and, for a limited span of their lifecycle, are edible!

Further Observations

• In a civil case, Trump was found liable for sexual abuse and defamation. He is appealing. I doubt this will significantly change whatever trajectory he’s currently on. Once DeSantis enters the race, things will get interesting.
• In another case of chickens appearing to come home to roost, habitual liar and member of Congress George Santos has been indicted on 13 federal counts including wire fraud, money laundering, theft of public funds, and making false statements to Congress. He has pled not guilty.
• Warriors :(

Articles

• Liz Holmes Wants You to Forget About Elizabeth (New York Times)
• Xi’s new growth synthesis (The Tangled Woof)
• Russia Has a Vodka Addiction. So Does Vladimir Putin — But Not the Same Way (Politico)
• India’s religious AI chatbots are speaking in the voice of god — and condoning violence (Rest of World)
• Japan Has Millions of Empty Houses. Want to Buy One for $25,000? (New York Times)
• Spiraling in San Francisco’s Doom Loop (Curbed)

Charts, Images & Videos

Movies & TV

• Beef (Season 1)
  Sucked me in deeper and deeper with each episode. The main characters are mostly Asian and about my age, which in a strange way (because things get really crazy) made this show more relatable. Worth a watch. ★★★★
• Air
  I’m a sucker for Damon/Affleck flicks. The 80s montages were also spot on. ★★★
• Guardians of the Galaxy Vol. 3
  Surprisingly good for a third installment. A little dark, a lot of fun. ★★★★

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Weekly Report, May 7, 2023

Observations

• One of our kids got the whole family sick this week, so just a short update.
• Following the demise of First Republic Bank, all regional bank stocks took a bath on Thursday. They rallied slightly on Friday, but the signal sent by plummeting stock prices could affect confidence and lead to a run on a bank by its depositors. If this continues, it’s hard to see where it stops with regional banks unless the government steps in and changes policy — most likely by doing something with the FDIC’s 250K insurance limit. Pac West and Western Alliance appear to be the most vulnerable at the moment.
• King Charles III had his coronation ceremony yesterday. I have been told by our resident royal watcher that historically the UK’s coronation ceremonies were not attended by foreign monarchs because the ceremonies were considered to be the business of the people of the UK alone. Now that the British Royal Family is considered to be one of the UK’s primary “exports,” times have changed… If you are curious who attended, here’s a list.

Articles

• Why First Republic Bank Collapsed (Wall Street Journal)
• 3 Failed Banks This Year Were Bigger Than 25 That Crumbled in 2008 (New York Times)
• Nuclear waste is misunderstood (New York Times)
• Study: OpenAI’s ChatGPT and GPT-4 ‘memorized’ these books (The Register)
• Yuval Noah Harari argues that AI has hacked the operating system of human civilisation (The Economist)
• FTC pushes to ban Meta from profiting off children’s data (The Verge)
• Senators unveil bipartisan legislation to ban kids under 13 from joining social media platforms (CNN)
• Pepsi’s New Healthy Diet: More Potato Chips and Soda (Wall Street Journal)
• A violent theory explains why most people are right-handed (Big Think)
  Similarly, castle spiral staircases usually rise in a clockwise direction to make it easier for right-handed sword wielding inhabitants to defend from above.

Movies & TV

• The Mandalorian (Season 3)
  Entertaining fodder.

Charts, Images & Videos

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