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

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In today’s post: regulating to create new pro-consumer monopolies in real estate; the incompatibility of linear and interactive storytelling; cooling the body as the world warms up; the surprising drop in asthma; space roller coasters; 700-year rate trends and the great redistribution; the rapid shift to active ETFs; and lots more below...

Stuff about Innovation and Technology
AI is not Power Hungry
Despite the big growth in cloud computing and video streaming in 2020, Google's global data centers only used slightly more energy than 2019’s 12 terawatt hours. Further, machine learning, thought to be a major energy hog, is reportedly only a tiny fraction of the total energy consumption – even when they account for things like GPT-3, the language model, which takes one month to run on 5,000 computers. To make AI even more efficient, Google is placing data centers in Iowa and Oklahoma, where nighttime temps are lower and daytime brings wind power. Using custom-built accelerators like the TPU helps Google achieve this efficiency as well.

EU Emissions Standards Favor EVs
New EU emissions rules will likely make gasoline powered cars less profitable than EVs as soon as 2025 – due to the sophisticated technology that would be required to make ICE vehicles compliant.

Realtors Back in DoJ Crosshairs
There are a lot of somewhat obscure focal points in Biden’s new executive order on competition. One that caught my eye involves the real estate industry. Following a settlement between the National Association of Realtors and the DoJ (covered in #273), the DoJ subsequently backed out of the deal earlier this month: “‘The proposed settlement will not sufficiently protect the Antitrust Division’s ability to pursue future claims against NAR,’ said Acting Assistant Attorney General Richard A. Powers of the Justice Department’s Antitrust Division. ‘Real estate is central to the American economy and consumers pay billions of dollars in real estate commissions every year. We cannot be bound by a settlement that prevents our ability to protect competition in a market that profoundly affects Americans’ financial well-being.’” The original settlement favored transparency and seemed likely to advantage modern brokers, such as Redfin, who put customers first and can reduce commissions thanks in part to their lower, technologically-enabled overhead. However, apparently the administration thinks the settlement didn’t go far enough. The section in the Biden EO regarding real estate calls on the FTC to spearhead reform to address potentially unfair or non-competitive practices, and unwinding the settlement would allow the FTC to pursue additional changes. Legislating industry-wide transparency could foster competition, which would be a rare example of regulatory action that does not ultimately benefit incumbents through regulatory capture. If the government makes good on their promise to increase consumer protections, the impact to traditional brokerages (and their ad budgets), could also be a catalyst for the real estate portals (and iBuyers) to become more aggressive with expansion into the broker business (covered in #264). As I mentioned toward the end of last week’s newsletter in reference to our papers on regulation, Information Age monopolies, when managed correctly (e.g., keeping the platform intact but granting competitors access to data), can advantage the consumer through network effects, which would be lost if regulators were to fragment the monopoly or raise the cost of doing business. But, at this point, tech is still trying to break into the established real estate ecosystem, and, I would argue, there are shenanigans keeping the tech-driven platforms from creating those network-effect benefits for consumers. For example, Zillow brought some transparency to the market with their Zestimate of home values, but they have not transformed the cost or logistics of the home transaction yet. Ironically, by regulating real estate, the US might ultimately create a winner-takes-all (or a small number of platforms that take most) for the real estate transaction market; nevertheless, the network effects of a digital real estate platform could greatly benefit homeowners.

Netflix Seeks Entry to Metaverse
Netflix has expressed interest in licensing more content to game makers, and, with a recent hire, might even be looking to offer games in the Netflix app. It’s not clear to me how that would work – would I use my Roku remote to play Candy Crush or a game version of Stranger Things on my TV? I believe, at some point in time, every Hollywood studio has dabbled in video games directly or indirectly. Some of them famously built out or acquired large gaming businesses only to sell them off or shut them down in failure. Sony is perhaps the exception, as they own both a massive gaming franchise and successful Hollywood studio; but, one does not necessarily feed the other. Interactive storytelling is a vastly different art form than linear, scripted storytelling. Over time, interactive content will likely grow faster and take share from traditional film and TV (see #261), and, if Netflix is serious about gaming, they may need to make a much bolder off-platform move, like acquiring a metaverse engine like Epic or Roblox. Separately, Netflix is working with its creators on more live events to offset slowing subscriber growth, according to the Hollywood Reporter. As I’ve said in the past, if Netflix can create more enduring franchises, they should be opening Netflixlands around the world. Or, with Comcast seemingly waffling on its commitment to Peacock (Comcast’s Universal has licensed live action to Amazon and animations to Netflix after the shows spend only four months on Peacock in a half-pregnant strategy that is likely to harm Peacock’s success as a standalone app), perhaps Netflix could get their hands on those studio assets and the Universal Theme Parks. While I am speculating on media mergers that are unlikely to happen, it struck me recently that Roku should use its lofty market cap to do a much bigger content deal, like perhaps acquiring ViacomCBS.😏

Miscellaneous Stuff
Extending Life via Chill Pills?
Humans are homeotherms, which means we use energy to keep our body temperature (and thus our metabolism) in a narrow band. However, for the majority of life on Earth, internal temperature/metabolism is heavily influenced by the external temperature, with small changes in external temps having exponential impacts on metabolic rates. Geoffrey West of the Santa Fe Institute (and the author of the excellent book Scale) notes that metabolic dysregulation is a major, and very underappreciated, risk with global warming. He also posits that one way to potentially extend our lifespans would be to develop a pill that artificially lowers our target body temperature a bit, thus reducing the speed of – and wear and tear on – our metabolic system. Sounds good in theory, especially if you consider the energy savings of food production if we are all consuming fewer calories. However, I’d guess that we would have to take a reversal pill every time we needed to do some heavy mental lifting, and we had better get fully autonomous driving figured out beforehand.

Pandemic Mediation Efforts Benefit Asthmatics
Asthma attacks were down 40% after the start of the pandemic, according to a US study with 1200 participants. People who worked outside the home at the (pre-pandemic) onset of the study saw an even bigger decrease (65%) than those who reported working at home (23%). Air pollution didn’t seem to be a material factor, leaving researchers to conclude the viral loads of common colds and flus, which were dramatically lower during the pandemic, may be bigger asthma triggers than previously thought. It seems to me a key takeaway is that masks greatly helped people with asthma from potentially multiple standpoints – reducing exposure to viruses, pollen, and indoor/outdoor pollution (e.g., cleaning supplies, car exhaust). Or, maybe many of us are allergic to other people, and the social distancing helped!

Space Roller Coaster
A trip to space for civilians is the ultimate theme park ride to gain a little perspective on our pale blue dot. Virgin Galactic’s CEO is even the former president of Disneyland, and the company recently hired a former Disney Imagineer as an Experience Architect. Theme Park Insider writes: “Themed entertainment strives to create moments that bring people into another world. Ultimately, that is exactly what Virgin Galactic is selling. It's a moment in space (or, at the edge of it, if you're a Karman hard-liner), that awakens your imagination and passion for space and the opportunities it provides.” The $250,000 ticket, however, edges out the cost of a ride on Space Mountain. Of course, traveling to space has many different meanings for everyone (Vonnegut's always struck me as one of the funniest).

Stuff about Geopolitics, Economics, and the Finance Industry
Interest Rates’ Historical Downward Trend
A new working paper from the Bank of England (PDF link) has one of the more detailed looks at interest rates’ downward march to zero over the last 700 years. I’ve covered the myth of interest rate mean reversion in detail in #257 as well as the deflationary impact of technology in #258, which I believe to be vastly underestimated in analysis of long-term rate trends. Whenever I see a chart on long-term rates, I am reminded of an essay by Ole Peters that I’ve previously discussed: “Did low rates increase debt, or did debt demand low rates? As an economy grows and debt increases, the borrowers – those people who need to make the interest payments and eventually return the principle – tend to be disproportionately less-wealthy, while the people who lend money out and make a return on it tend to be wealthier. As time goes on, the wealth of the wealthier is more and more tied to the interest payments from the less wealthy – one person’s indebtedness is another person’s asset. And, as inequality marches higher, the less wealthy have an ever-rising debt burden that can only be maintained by perpetually lowering interest rates. It’s in the best interest of the lenders to lend at lower and lower rates to preserve their assets. This explanation is somewhat at odds with the general narrative – that lower rates are the driving force behind rising debt.”

The BoE author reached a similar conclusion: “There is no reason, therefore, to expect rates to ‘plateau’, to suggest that ‘the global neutral rate may settle at around 1% over the medium to long run’, or to proclaim that ‘forecasts that the real rate will remain stuck at or below zero appear unwarranted’ as some have suggested...the long-term historical data suggests that, whatever the ultimate driver, or combination of drivers, the forces responsible have been indifferent to monetary or political regimes; they have kept exercising their pull on interest rate levels irrespective of the existence of central banks, (de jure) usury laws, or permanently higher public expenditures.” As previously mentioned, I like Brian Arthur’s views that we are entering the distributive era of economics. Rather than rates cracking through zero and continuing to negative infinity, it seems much more likely the wealth of the world will be redistributed in a way that creates some inflation to offset dropping rates. In a potential Goldilocks scenario, deflationary pressure from technology would make the porridge of inflation, rates, and redistribution taste just right over the long term.

Jumping Off MF Ship
Mutual funds are starting to follow their customers to the more friendly ETF model. In 2020, ETFs saw $497B of new flows compared to $506B that left mutual funds. Following a record $483B of inflows to ETFs so far this year, most large MF shops are, at the least, dipping their toe into ETFs. It’s a classic innovator’s dilemma – ETFs are a better product for most circumstances (lower fees, more tax advantaged, higher liquidity), but they largely displace the direct retail customer relationship, lower the value of the advisor sales channel, and put the products in direct competition with a bigger pool of lower-fee alternatives. Dimensional Fund Advisors, a $637B Texas-based asset manager, is moving aggressively by converting existing MF products into ETFs and is providing the same products for 27% lower fees, not to mention the lower annual tax hit for non-retirement accounts. The worst part about those taxes on MFs is that, as people sell and exit funds, the remaining holders are potentially left with a bigger share of the tax bill. Many large asset managers have lost their direct retail connection with current and potential customers and will need to rebuild those relationships. The winners will be the ones who can provide attractive products with lower fees and successfully market to a demographically shifting customer base, who may be more in favor of Robin Hood than the Sheriff of Nottingham.

Beijing Cracks Down on Chillin’
According to the NYT, and I assume they checked their sources, “lying flat” (“tangping” in Mandarin) is a new phenomenon in China whereby youth, disillusioned with the frenetic pace of the rat race, are choosing to chillout in an act of defiance. As the NYT says, they are “refusing to participate” in China’s “long-held prosperity narrative”. The viral behavior was triggered by a blog post by a fed-up former factory worker. The post has since been removed and was widely censored by the Chinese government. “To lie flat means to forgo marriage, not have children, stay unemployed and eschew material wants such as a house or a car. It is the opposite of what China’s leaders have asked of their people.” Unwilling to take this terrible affront to progress lying down, the Chinese government has ordered social networks to “strictly restrict” posts on tangping and ecommerce sites to discontinue selling t-shirts with any sort of tangping activity on them. China barred access to the popular song “Tangping is King”, but it’s still available on YouTube (which is also blocked in China).

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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. 

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