This would be easy to cryptographically certify, this is not a problem.
12,498 karma · joined March 22, 2015
But what I don't think is particularly defensible is the position that the gatekeepers of our monetary system should be the corporations who happen to occupy the current choke points. And I think if you wanted to build a democratically controlled financial system that doesn't have corporate gatekeepers, you'd actually want to start with something very much like a decentralized open blockchain. That is, if you want to build a democratically controlled permissioned system, you need to start with an open fabric, and place the gatekeepers and choke points with intention.
Personally I prefer an open fabric, but I do understand the appeal of walled gardens.
A substantial amount of de facto financial regulation comes not from democratically elected governments, but from companies that gate-keep access to the databases where financial truth resides. A great example of this is Visa and Mastercard dropping PornHub as a client. But there are many others. Building software that interfaces with money is extremely difficult, what you can and cannot do is extremely limited, and you may only do so at the pleasure of the major financial institutions that sit between your code and the traditional financial system.
Right now, if you want to write code that manipulate's someone's money, you have to ask the permission of both the owner of the funds, and several intermediaries along the way. What those intermediaries choose to allow you to do can be arbitrary, capricious, and certainly is not democratic.
It is true that decentralized blockchains also facilitate the flouting of the law, and that can be good or bad, depending on your point of view. But fundamentally, having an open fabric for finance, in which anyone can build any kind of application they wish, seems like a pretty cool thing to me.
These were very difficult industries, industries that were extremely contrarian to bet on when he did. Making the financial bet alone would be a great accomplishment for any normal person. Peter Thiel is a famous investor for making far less contrarian and far less successful bets without operating anything except Paypal.
Musk's bets were far more concentrated, and he chose the personnel, operated the companies, made the strategic decisions, and yes, also marketed them brilliantly. But he only got to flex those marketing muscles because he spent a decade assembling, managing, and financing the teams that built the product in the first place.
Boring company is also not yet a failure, and has recently built several tunnels. Neuralink is an early stage research company and is still humming along. It may fail some day, but it certainly hasn't failed yet. As for Hyperloop, he specifically said he wasn't going to build it, and several companies are still working on it, including in China:
https://futurism.com/the-byte/china-maglev-vactrain-hyperloo...
None of these things are "failures". They may become failures one day. It'd be crazy if some of them didn't. But you can't count a research project as a failure just because it doesn't have a product yet.
He has obviously been highly successful at marketing. But his "real success" has been in delivering products like useful electric cars and reusable rockets that didn't previously exist. His marketing skills help with that, but all the marketing in the world isn't going to sell a product that doesn't exist (except in crypto).
How many have succeeded on the scale Elon has? "Throwing money at smart engineers" is not a novel idea. Executing it well is extremely hard, especially when cash has been cheap for the past two decades.
I'm sure that's true for planes, but I see no reason to believe it's true for Twitter. He's fired a lot of people, but as far as I can tell most of the teams that were killed weren't mission critical.
> Twitter's business is advertising sales. Musk destroyed a billion dollars in committed pre-sales for 2023, then drove away more advertisers in his attempt to fix the situation, then threatened prospective advertisers with "thermonuclear name-and-shame." He's basically destroyed Twitter's ad sales model without a replacement revenue stream ready to go. $8 for various perqs won't replace a fraction of it even with significant uptake, and this is in the context of adding a billion dollars of annual debt servicing in a company whose revenue was only marginal profitable with the ad sales.
This is true, and an ordinary business owner (particularly of a public company) wouldn't do this because they're afraid of losing money for a quarter. Elon isn't as afraid of that, for obvious reasons. He clearly didn't anticipate the advertisers would do this this quickly, especially before he even made any changes. I'm not sure most people anticipated that.
However, the speed with which he's moving has its advantages as well. He just fired 50% of the staff, which presumably nearly cuts their costs in half, since most of a company like Twitter's costs are salaries. So, he does have some breathing room to lose some revenue.
> On top of that, cutting half the staff with zero notice and ordering a billion dollar reduction in infrastructure costs is a massive amount of organizational chaos added at the same time as he's expecting to iterate quickly and replace a multi-billion dollar revenue stream.
This is true, but thus far that chaos has been completely manageable. Twitter hasn't gone down or had technical problems that I'm aware of. It's still very early, of course, and it might have some soon. But I don't see any evidence that anything he's actually done has caused problems yet.
The teams that got cut entirely all seem to me to be non-mission-critical, in a revenue/uptime sense. The mission critical teams got minor haircuts. It doesn't seem at all to me like he's putting the site at risk of going down in a technical sense.
There's a bunch more strange takes in this piece, but this first one is pretty emblematic of the class. Elon very well might fail, but there are perfectly reasonable explanations for the things that he's doing, and the way that he's doing them. He's hashing this all out in public in real time because he wants to move extremely fast, and he clearly feels that most of tech, and Twitter in particular, have become fat and lazy. His remedy is to avoid the drawn out process of a "normal ceo":
> Instead of doing what any sane new CEO of a troubled entity would do (namely, determining what changes need to be made by spending a bunch of time listening to customers, users, and employees — and then carefully plotting and executing those changes)
And instead iterating rapidly, in public. This approach has obvious drawbacks, but it does have benefits in terms of iteration speed, feedback, and avoiding certain kinds of institutional bias. It might not work out, of course, but why are we pretending that it makes no sense?
The guy is clearly competent. He does some things I don't always agree with, and I think in particular he's taken a bit of a strange turn in the past few years. However, he's built more successful wildly successful companies - in very difficult industries - than nearly anyone on earth. The idea that he doesn't understand Twitter's business model is just fundamentally a non-serious thing to say.
2. It's possible of course, but almost nobody making either point (usually both) does so with the kind of nuance necessary to make this argument.
However, you could try to think about ways to hedge that risk, by thinking about who benefits in ancillary ways. E.g. for instance, which firms are likely to benefit most from AI labor substitution (whether developed in house or not). There are no certainties here, of course.
Ya, that's why it's a hedge, not an isolated bet. The idea is that one of two things has to happen: high interest rates, or strong AI labor substitution. You construct a portfolio to benefit from either outcome.
My expectation would be that the AI bets would lose money and the interest rates bets would make money, on average. However, in the case where AI really does undergo a miracle in the next decade sufficiently profound to lower interest rates, my portfolio would be hedged to that.
Betting on AI is more complicated: Obviously chip makers are likely beneficiaries, along with tech giants, in particular Google via Deepmind appears to be a leader in this area. But there are other ways for this sort of thing to play out, a lot of companies HNers probably never think about are investing in AI automation for their factories and automation in various ways. One possible future is that Deepmind builds The General AI Solution, and then licenses it to everyone. Another possible future is that the tech becomes so easy to build that each company just builds its own tailored solution for its particular problem.
I think I find the latter solution somewhat more plausible, but both are definitely in play. How you invest to benefit from that is tricky. It's likely in that scenario that some big companies will develop solutions in house, and others will buy startups that you'll never have a chance to invest in. Your job as an investor at this stage would be to figure out which big companies that you can invest in are likely to be the ones who do this successfully.
And when I talk about big companies here I don't necessarily mean the big tech companies. I mean companies like Tyson that makes chicken, or chemical companies, or firms like Accenture, etc. This is the harder side of the bet, because it's going to play out over quite a while, and there is a lot of uncertainty about exactly how.
All of these things cause structural inflation, and thereby necessitate structurally higher interest rates. Not to mention the fact that at the very least, the tailwind of globalization is over, which means that the ultra low rate regime we have enjoyed over the past few decades absolutely cannot be sustained. Inflation is back as a problem for the fed unless and until we got another sustained source of cheap growth.
There is one, and only one plausible such source imo, and that is powerful AI labor substitution. Hence the solution: Go long high interest rates, and make a levered long term bet on AI. These two things hedge each other. You don't have to believe AI labor substitution is going to happen (I'm not totally confident it will), all you have to believe is that it's our only out for structurally higher interest rates.
A portfolio constructed to benefit in the right proportions from these two things is currently cheaper than it ought to be, in my opinion. I expect this bet to play out roughly over the next 10-15 years, and I am still not decided on exactly how I want to construct it in terms of specific assets. But broadly I think it's the right move.
EDIT:
Totally separately, i'd like to quibble slightly with this bit of analysis:
> This suggests that, if interest and tax expenses had not declined as a share of EBIT (as shown in Figure 1), then the real growth rate of corporate profits would have been almost 2 percentage points lower each year (5.4 – 3.6 = 1.8 percentage points). In other words, the relative decline in interest and tax expenses is responsible for a full one-third of all profit growth for S&P 500 nonfinancial firms over the past two decades (1.8 / 5.4 = 1/3). This is a very substantial contribution
This isn't quite accurate. Cheap debt decreases the hurdle rate for capital investment. In other words, if rates weren't so low, much of this debt wouldn't have been taken out, and only the higher returning projects on average would have been invested in. Stated another way, as interest rates decline, the profitability of the marginal debt-financed investment declines along with it. It can also lead to anti-productive debt-financed market share wars between companies, etc (think of the vc battles between uber and lyft). This complicates the picture they're painting a bit, and likely reduces the true number here somewhat, but doesn't alter the broader story.
Say you make $100 in revenue and $1 in profit, and $1 of your $99 in costs is debt service. Your debt service increases to $2, your profit drops to zero.
Now your revenue increases to $101, presumably your debt costs stay fixed (this is not a guarantee - revenue expansion costs money), but your non-debt-service costs scale as well, and they are now 0.98 * $101 + $2 in debt service = $101.98. Congratulations, your profits are positive again, but they are $0.02.
I am eliding here the general difference between fixed costs and variable costs, and so it's probably not true that your costs would scale quite this much with revenue, but it's much closer to the truth than that you'd be back where you started, esp. in a low margin business.
If a grocery store makes 1% profit on each item it sells, and its debt service cost is 1% of its revenue (making it roughly "1% of its cost") a doubling of debt service cost wipes their margin to zero.