Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, allostasis, and whatever else made me think last week.

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: innovation in fintech as the legacy banks increasingly regulate speech and action; drone deliveries becoming a reality; autocratic espionage; Brian Arthur and Sean Carroll talk; piles of clothing waste; the endemic and its long-term impact on shipping times and costs; the permanent loss of labor and the rise of robots; and much more below.

Stuff about Innovation and Technology
Wing's Chicken
Google’s drone delivery service, Wing, has now delivered 100,000 orders. More than half of those were in Logan, Australia, where Wing has dropped off 10,000 cups of coffee, 1,700 snack packs, and 1,200 roast chickens. A recent bustling week in Logan saw drone deliveries taking place every ~30 seconds during business hours. Wing estimates that 2B people live in cities about the size of Logan (pop. 300,000) that could be servable by drone delivery.

Human Brain on a Chip
In an interview with Semi Engineering, the chief strategy officer at the global semi R&D shop, IMEC, discusses the work being done at the intersection of chips and biology: “The idea is that we can build a circuit of neurons on the silicon chip surface. With the use of electroporation by electrodes and injecting biological vectors through microfluidics, we can program regular cells to become stem cells again. Then, with the right stimuli we can program those induced pluripotent stem cells to make them become neurons of a certain type. We have a project running with experts in the cell biology to master the process to build or mimic the neuronal circuitry of a human brain on a chip.” The interview also covers the shift from wearables to ingestibles and implantables for better, continuous monitoring, but with the added challenges of energy harvesting and cooling.

Battery Power Law
Demand for EV batteries rose 40% y/y to 134.5 gigawatt-hours last year, powering 3M new cars. By 2030, some estimates show 145M EVs on the road, up from 10M in 2020. IEEE reports that six companies have 87% share of EV battery supply, and the top three, CATL, LG Energy, and Panasonic, control 69%. CATL and LG have gained the most share, growing ~10x and ~3x vs. the market, respectively, from 2016 to 2020. IEEE also mentions the trend toward reducing cobalt in batteries. To meet projected demand, the US alone needs a terawatt of new battery capacity this decade across 20-40 new gigafactories.

Coerced Espionage
Protocol reports that the FBI is ramping up its warnings to US tech companies about the risk of theft by China and Russia. In particular, the bureau warns that well-intentioned employees can be influenced to steal IP and other trade secrets when foreign governments threaten their family members back home. In one case, an employee of a US company was under threat of the CCP denying their mother dialysis. The FBI stresses it’s important to not discriminate against anyone just because they have family living in an autocracy, but to be aware of the elevated risks. The agency is working with Silicon Valley VCs to determine where the most valuable tech is being created so they can alert companies of the need to identify – and help – individuals with potential vulnerabilities.

Prudish Banks Catalyze DeFi
It’s a little hard to parse what happened recently with the multi-billion-dollar adult-content creator platform OnlyFans, which abruptly told its members they would be banning explicit content due to pressure from banks and credit card companies following some recent rule changes. However, days later, management reversed course, saying they had come to an agreement that allowed explicit content to carry on. There are a lot of cross currents in this situation that I don’t fully understand, including banking’s role in helping prevent sex trafficking and other illegal behavior. However, it’s not clear to me that allowing consenting adults to create and share explicit content is inconsistent with targeting illegal behavior. Protocol points out that MasterCard and Visa’s monopoly in payments makes them a default arbiter of free speech, which strikes me as a bad situation for a lot of reasons. OnlyFans pays out $300M a month to creators. It’s a long running joke in the tech industry that the adult entertainment has always been an early adopter of most new technology and media formats. Accordingly, this recent controversy could serve as a catalyst for a DeFi monetary solution that completely cuts out the traditional banking system, keeping the adult entertainment industry on the cutting edge of innovation. In the interview with the FT, OnlyFan’s founder said JP Morgan Chase, which, as we know, calls DeFi (and fintech innovation in general) shadow banking, “is particularly aggressive in closing accounts of sex workers or . . . any business that supports sex workers.”

Miscellaneous Stuff
Starring Complexity Economics
Brian Arthur and Sean Carroll are two of the most quoted people in SITALWeek, so when they sit down for a conversation together, you can bet I will link to it! Sean interviewed Brian about many aspects of applying complex systems science to economics.

From Pandemic to Common Cold, Eventually
As COVID shifts from a pandemic to an endemic, one of the ways our species will cope with the virus going forward is that new generations will have the benefit of earlier exposure – when there’s less risk of adverse reaction – allowing progression of herd immunity over time. There are four main coronaviruses behind the common colds we all get, and they have existed for generations. Because we grew up with frequent exposure, our immune system developed a better ability to fight off those viruses, so we now don’t get as sick as we otherwise might upon subsequent exposure later in life (of course, the virus strains are constantly evolving, but exposure to an earlier variant tends to confer a degree of immunity to mutated progeny). If the novel coronavirus becomes the fifth common cold, we can expect younger kids to handle the virus better over their lifetime as compared to today’s adults, who don’t have the benefit of building a natural immunity to a novel virus in their youth when the immune system is more responsive and resilient.

Fast Fashion’s Load of Rubbish
We buy 60% more clothes than we did 15 years ago, and we keep items for half as long. This trend has powered a doubling of the clothing industry since the year 2000. In Accra, Ghana, much of the used clothing we donate ends up as mountainous piles of refuse, dotted with human and bovine scavengers. Forty percent of the 15M garments, called “‘obroni wawu’ – dead white man’s clothes”, that arrive from the US, Europe, UK, and Australia are discarded as unusable. This disposable clothing trend follows the overproduction of inferior-quality “fast fashion” garments and donation of excessively damaged goods, which are subsequently barged across the seas instead of being disposed of locally. There is potential for escalating environmental damage somewhat akin to our plastic recycling mess (actually, since cheap polyester features prominently in fast fashion, it’s perhaps more accurately an extension of the plastic waste catastrophe), as first-world countries flood poorer nations with more and more of our trash. Hopefully, increased awareness will dampen the revolving fashion trend. But, consumers aren’t the only ones responsible for the waste. On the production side, brands often overproduce items and end up scrapping them wholesale. Online luxury seller Farfetch is working with several luxury brands on preorders to help adjust manufacturing to meet demand (although, admittedly, this is a small part of the overall market for clothes).

All About Allostasis
Lisa Feldman Barrett penned a concise explanation of allostasis for Technology Review, explaining how senses, thoughts, and feelings are a consequence of the brain trying to regulate you (specifically your body, so that you continue to remain viable) given the conditions of the world around you. The brain is constantly creating models of you and your interactions in physical and emotional space, and then checking new input vs. that model. This explanation is opposite to how we intuitively think our brain works, i.e., reacting to already observed inputs. I discussed this idea in more detail in #272 as it relates to decision making. The logic inversion is very useful once you fully internalize it – we are not a product of our environment; rather, our reactions are shaped by what our brain anticipates our environment to be, with an eye towards physical fitness/survival.

Stuff about Geopolitics, Economics, and the Finance Industry
Enduring Labor Dearth
The labor shortage persists as a major headache for businesses, with restaurants continuing to close dining rooms and logistics companies struggling to meet demand. If the labor force is structurally lower relative to steady-state demand, then this is not so much a labor shortage as a wage problem. If we want people to re-enter the labor force long term, then we potentially need significantly higher wages. Higher pay is going to be in tension with the rising use of technology and robotics, which will ultimately act as a natural damper on wages and labor demand. In the restaurant sector, Sweetgreen (a chain of salad eateries) recently acquired Spyce, which uses touch screens for ordering and robots to assemble customers’ custom bowl meals. Restaurant Dive also reports that Piestro, a robotic pizza machine that can make a wood-fired ‘za in three minutes, will roll out across the 16-restaurant chain 800 Degrees Pizza. Another example comes from the world of sports, with the rise of the robot umpire, now used in some minor league games (an experiment we first wrote about nearly two years ago). The ump is still behind home plate, but only to call out what the robot tells them via an earpiece. The games are said to be a bit quieter, as neither side argues over calls anymore and fans assume the automated system is more accurate.

COVID’s Supply Chain Snarls
Discount retailer Dollar Tree imports 90,000 40-foot containers per year, and the company estimates it brings in more containers per dollar of sales than any other retailer in the US to feed its shelves. Due to China's zero tolerance COVID policy, Dollar Tree experienced a two-month delay on one vessel as a result of one positive COVID test requiring a new crew to be staffed in another country prior to returning to China. Meanwhile, C.H. Robinson is adding a $175 congestion surcharge to every container. As COVID turns into an ongoing endemic, it’s prevalence could continue to snarl the ports and cause multi-month delays for a very long time. After decades of globalization, the West has shifted production overseas to save on labor (fun fact: 98% of all Big Lots artificial Christmas trees come from a port in the Yantian district of Shenzhen). Given trending political-economic East-West tensions, COVID-induced logistics costs, and adverse environmental impacts, I see few good reasons to continue outsourcing production for many of the items we import from overseas. And, now that automation reduces (with ever-increasing impact) a lot of the labor costs (such that labor itself is now more expensive across previously cheap manufacturing locales vs. automated production), the only logical solution may be a decades-long rebuilding of supply chains and factories for re-localization of production. Until that happens, you might want to do your holiday shopping now!

✌

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 an informal gathering of topics I’ve recently read and thought about. I will sometimes state things in the newsletter that contradict my own views in order to provoke debate. 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.