Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, coin tosses, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: big tech signals that remote work was a bust; German radios, AR, and human flaws; Hollywood studios deprive Netflix; new Arm products underscore Nvidia acquisition; what ants teach us about canals; coin tosses; over the hill Millennials; and lots more below...

Stuff about Innovation and Technology
Flamethrowing Virtual Villains Coming to Park Near You
Pokémon-Go-maker Niantic has released a video demo of what a 5G, augmented-reality, multiplayer game experience might look like. In Codename: Urban Legends players use their phones to cast spells (send virtual fireballs) at their AR adversaries, and everyone can see the gameplay taking place in the real world via their phones. Regardless of where you are standing, AR characters/projectiles appear to occupy externally-consistent physical locations thanks to the low latency of 5G networks.

Green Commuting
Google Maps has a new feature that will provide a route option with the lowest carbon footprint in addition to the fastest route. Maps will also start showing routes based on what it thinks is your preferred method of travel (bike, subway, car, etc.). Google is also working on a pilot with a Fred Meyer grocery store in Oregon that will allow store employees to know when you will be arriving for your order pickup.

Hollywood Streaming Success Deprives Netflix
As the big Hollywood studios see success with their streaming apps, they have all signaled they will be hanging onto their content rather than continuing to license it to rival Netflix. Last week I mentioned that of the top 19 streamed shows, 10 were licensed by Netflix from other studios. NBCUniversal is thinking of bringing movies, like the Fast & Furious and the Jurassic series, back from Netflix and HBO Max, according to Bloomberg. Meanwhile, Netflix is paying $450M for Knives Out 2 and 3. Previously, Netflix topped out at $130M for The Irishman.

Nvidia's Arm Acquisition Part Defense
The Next Platform reports on Arm’s new V9 chip architecture in this informative article and implies that Nvidia’s targeted acquisition could be more defense than offense. At question is the ultimate size of the GPU market for standalone, homogeneous data centers for machine learning/training compared to the vastly larger market for custom instructions for inference in a variety of heterogeneous situations. “In other words, Nvidia’s GPU compute business has a limit to its expansion, and perhaps it is a lot lower than many of us have been thinking. The pendulum will be swinging back to purpose built CPUs that have embedded vector and matrix capabilities, highly tuned for specific algorithms. This will be specifically true for intermediate edge computing and endpoint IoT devices that need to compute locally because shipping data back to be processed in a datacenter doesn’t make sense at all, either technically or economically.” The combined prowess of Nvidia and Arm will set the bar even higher and accelerate the moving target for many would-be chip challengers. The FT reports on Groq, a chip startup from one of the brains behind Google’s custom TPU for cloud-based inference workloads, which is looking to raise $300M. That amount might get them to their first version of a chip, but how much progress will Nvidia or Amazon’s team make in the meantime? SemiWiki has a post on the rising, but still small by historical standards, VC market for chip deals.

Big Tech Returning to Offices Casts Doubt on Remote Work
Big tech platforms seem to be following diverging paths for returning to the office. Microsoft has already started bringing some employees back but is maintaining a flexible policy by allowing any employee to work remotely for less than half of their time or apply to work remotely full time. Facebook will begin welcoming employees back at 10% of capacity in May and 50% in September for their California locations. Last year, Zuckerberg indicated half of employees might work remotely long term, and the company has been ramping up their focus on VR collaboration lately. However, that goal doesn’t seem to apply short term, as Facebook has said all employees will come back within one month of each office returning to 50% capacity. Free food at corporate cafeterias and buses hauling workers into offices will be missing when offices reopen. This change will surely put a burden on highways and make for some interesting local restaurant dynamics. You’re also out of luck if you want to kick back at home and work for Google, as the company will allow employees to work remotely for more than 14 days a year only after formal application, and they indicate full-time remote will only be granted in “the most exceptional circumstances”. Amazon is also seeking butts in seats as it returns to an “office-centric culture”. The company noted: “We believe it enables us to invent, collaborate, and learn together most effectively”. Apple has not yet publicly updated their plans for employees returning to work. If you work for Salesforce, Zillow, or a number of other tech companies, it seems flexibility will be on your side. This should be a major recruiting advantage for these companies, unless the downsides of working from home outweigh the recruiting upsides – after all, the big Internet platforms herding employees back to the office are data junkies, and they’ve clearly crunched the numbers on the negatives of remote work. I am surprised job location isn’t being defined by function, with more collaborative/creative jobs back in the office and more routine number-crunching/programming/support positions at home. It seems like a real shame that some of the biggest companies in the world didn't decide to evolve the concept of work, perhaps wasting a once-in-a-lifetime opportunity.

Restaurant Bifurcation; Comfort Food Survives Pandemic
Overall, 10% (80,000) US restaurants closed permanently in the pandemic, according to data reported in Restaurant Dive. Other estimates have put the number above 100,000, and surely more are still to close. Largest chains fared the best, while chains with 500 or fewer locations have closed at a higher rate than independents. Of the small chains, those having only 51 to 100 locations experienced the highest (16%) closure rate. This evidence of a hollowing out of the middle is something we see often in the analog-to-digital transition where the big get bigger, the niche independents do well, and those in between tend to struggle. Comfort food providers had the lowest closure rates.

Stuff about Geopolitics, Economics, and the Finance Industry
New Edition of Ole Peters’ Non-Ergodicity Economics
Ole Peters has a fresh new video walk-through of his Gresham College coin toss. It’s a great way to get a handle on why the path through time matters more than the average expected outcome, and thus why all the math most investors are using is misinformed. In short, there is only one you and only one path your portfolio will ultimately take through time. You don’t have the luxury of playing the game over and over again and averaging the outcome. We’ve been passing the old Gresham talk around (which is still great!) since we wrote about it in our 2014 paper Complexity Investing, and we’re thrilled there’s a new high-def explanation. The logic also explains why GDP can grow while the individual outcome continues to decline on a relative basis.

1930’s German Radio, Facebook, and AR
I had two thoughts when I saw the headline that Microsoft will be selling $22B of HoloLens augmented-reality headsets to the US Army. First, I flashbacked to the disturbing Black Mirror episode “Men Against Fire” where neural implants are used to cause a group of humans to appear diseased in order to spur their extermination. With human proclivity toward tribalism, it’s easy enough to convince one group of people of falsehoods concerning another group of people, and AR/VR could make it much easier. The second thought I had was: I thought killing people was all about AI drones these days, so who needs $22B of goggles? The typically pacifist Satya Nadella defended the decision to a group of upset employees by saying: “we made a principled decision that we’re not going to withhold technology from institutions that we have elected in democracies to protect the freedoms we enjoy.”

Of course new technology has a long history of adoption by militaries. IEEE Spectrum has an interesting explanation of German radio in the 1930s. It takes time for humans to get used to new forms of communication, and Hitler used this fact to his advantage in the 1930s with the discount Volksempfänger (“people’s radio”). The receiver was about half of the cost of other models at the time and provided entertainment leading into propaganda. One of the important points about the overwhelming power of media is the often-overlooked direct parallel between the destructive aftermath that follows the introduction of a new media form (e.g., as with German radio) and our current media neophyte: Facebook. Historically, over time, humans have developed ways to counteract the manipulative power of various iterations of media – from spoken, to print, radio, and, most recently, TV. Eventually, the new media forms all lose the swaying power they had early on (after we’ve had a chance to develop immunity, so to speak). But, the persistent novelty of social media has apparently been able to – yet again – virally overwhelm our brain’s prediction machine to such an extent that we haven’t had time, as a species, to engage defensive mechanisms and take back control. Unfortunately, thanks to the ever-accelerating pace of technological change, our adaption windows are shrinking dramatically. Now, the fear is that AR/VR may be arriving too quickly after the advent of the Internet; and, they will have the ability to disrupt our brain’s sensory information processing and utterly garble the line between truth and fiction. Hopefully we don’t run out of time to inoculate ourselves from such profound manipulation before it’s too late.

Ants and Canals
Efficiency is fragile. That is a lesson we learned from ants. In Complexity Investing we wrote:
When it comes to Resilience, we have a lot to learn from ants – masters of Resilience. When we think about ants most of us would describe them as industrious. We’d certainly not think them lazy. Stanford University professor Deborah Gordon offers a different take. She’s been studying the same group of ants for the past 30 years and may know more about the behavior of ants than anyone. What she found is surprising: most of the time about half the colony is just sitting around doing absolutely nothing. Why? Certainly they could gather much more food if they all pitched in, right? Going back to complex systems, in nature, we see extreme events happen with some regularity. What if a flash flood destroys the part of the colony out harvesting or destroys the nest? Conversely, what if someone sets up a picnic nearby? No problem, call out the reserves! Ants have adapted.
When I read all of the press about the Suez Canal blockage, all I could think of was ants. If ants were in charge of global maritime freight, they would have engineered the system so as to avoid such a crippling event! One of the funny paradoxes of the rising use of technology in the supply chain is that efficiency has created fragility (especially in combination with globalization, which has created its own vulnerabilities). Just-in-time is great until it isn’t. And, when the entire supply chain has been MBA’d to death by consultants and data analytics squeezing pennies out of working capital, you’re going to have problems. We’ve seen a lot of these supply chain problems since COVID hit – from safety gear, to semiconductors, to hacking, to whatever was sitting in those 20,000 containers on the Suez (hopefully not toilet paper!). The head of shipping leader Maersk says solving this problem will require supply chains to move from just-in-time to “just-in-case”, a transition reportedly already underway. Distributors who are in the business of staging inventory and parts will likely reassume a bigger role after being sidelined by technology, which previously allowed many companies to cut out the middlemen. For industries that rely on the ability to quickly change products, like fashion, moving supply chains closer to customers is another likely trend.

Debt-Burdened Millennials Enter Prime Spending Years
Millennials start turning 40 this year. Peak income, savings, and consumption years in the US are from 35 to 54, where spending has historically averaged around $60,000/year. The Boomers have been, and continue, entering their lower spending years (and who cares about us stuck-in-the-middle Gen X losers!?). It’s worth noting the transition because the Millennial group, which will dominate the peak spending cohort for another 15 years, is coming in with more debt, higher housing costs, and less net worth. Kids are a big driver of those higher spending years as well, and birth rates have been down; although, as I wrote in 30-Something-Sneaker Wave in 2019, there might be a little tailwind coming.

✌

Disclaimers:

The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC.  This newsletter is simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.