#169 - Ugly Lights Just Got Turned On In Crypto, Trump Kills Red Wave and Dave Chapelle On SNL

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1. Market Update

2. FTX blows up

3. Elon is building in public

4. No red wave

5. Quick takes on Putin launching missiles at Poland

6. Chapelle on SNL

7. Recommendations and Predictions

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📈📊Market Update💵📉

Brian Chesky @bchesky

It feels like we were in a nightclub and the lights just turned on

Oh how much can change in a week.

It’s shocking what we assumed was true last Tuesday and what has transpired since.

No red wave.

Elon experiments with building in public. The right and left both hate him.

FTX blows up 16B in client funds and destroys nearly 50billion in value.

But after 3 years of nothing making sense, and the absurd reigning supreme, this past week was absurd exactly because logic AND common sense finally prevailed.

For 3 yrs you’d look at markets, crypto or otherwise, and be like “this is dumb this shouldn’t work.”

But it did.

Until this week.

Lets start with stocks:

While this could absolutely prove to be a dead cat bounce that is only knowable in hindsight. This is the first bounce we've gotten during the turmoil that has actually coincided with positive inflation data. This last week, inflation came in significantly below expectations.

This tells markets that what the fed has been doing these first 10 months has largely been working. The desired effect has shown up.

And when the market gets signal the fed can cool off the rate hikes, the Dollar goes down, and stocks go up.

The impact the Dollar is having on stocks is even more egregious when you look internationally.

When you look at the price of indexes globally. The Breadth is meaningfully moving in the right direction.

HOWEVER!

We have to understand that earnings are decelerating, the cost of money is meaningfully higher than in the previous bull cycle and were nearly fully valued in US and Canadian Indexes.

I think its probably fairly likely that we trade in a 16-20x $220 of earnings for the next little while.

Crypto:

This year’s key lesson about virtual currencies is that human ingenuity is not enough to make a solid investment. Structures and guardrails are also necessary.

And while many of the links i’ll be sharing and speaking about may be bias in the eyes of crypto maxi’s, I do think that the link below to Ken Griffen talking about the FTX crash rings true.

Holland Cedar Capital Management @hollandcedarcap

Full talk. Cut the end about meaningless stadium talk in Miami.

While the end of that feels ominous, I think theres a lot of lessons to be learned and lot of insights into the future to be gleaned.

But without trying to explain an ever changing story for all our readers and listeners i think its most appropriate to read Matt Levines piece linked here.

TLDR:

FTX lent US$10bn of client funds to their trading arm Alameda, which used it for leveraged crypto speculation.

Alameda blew up in crypto meltdown and can't repay. People got a whiff of this & tried to pull US$5bn from FTX.

FTX didn't have it.

Like many in the crypto world, where delusions ran wild (ensnaring a surprising number of supposedly smart people in SV), SBF drank the crypto cool-aid and probably didn't believe there was much risk to what he was doing, because, ya know, crypto was obviously going to go up...

In financial markets, there is a long history of market downturns exposing fraud, ponzi schemes, and other malfeasance. As Buffett has long said, you only get to see who has been swimming naked when the tide goes out. FTX is just another example.

The scale and brazen nature of this fraud/misappropriation of client funds, however, reflects

1. the total lack of regulatory oversight; and

2. the extreme amount of delusion, greed & investor naivety that infected the whole crypto space.

Elon and Twitter:

Casey Newton reported several Twitter employees were fired after “criticizing” Elon, their boss, in public Slack channels:

Casey Newton @CaseyNewton

NEW: Employees who have criticized Elon Musk in Twitter’s Slack channels were fired overnight over email. “We regret to inform you that your employment is terminated immediately,” they’re being told over email. “Your recent behavior has violated company policy.”

Multiple of these critiques reading: “petulant man child.”

I think what’s happened is something like this: in an era of endless, easy cash, productivity expectations naturally decoupled from compensation expectations, and tech workplaces gradually became identities. As working at a place like Twitter is now less a job than it is a kind of nationality, it is perfectly understandable why the remaining Twitter malcontents who haven’t yet been fired responded to their new boss, and everyone close to him, as if he were trying to kill them.

Twitter was their home. Elon broke into their home. Then he kicked out their friends, and told everyone left to do their laundry. Fuck that guy!

Commentary, both in the press and among the broader public, has bizarrely confirmed such feelings, and treated them uncritically. Every change to Twitter’s culture has been scrutinized, no matter how commonplace in every other industry, in both this and every other country on the planet. Employees will have to go to the office? How dare you, sir. Without unlimited paid time-off? Why, this is an outrage! Without exorbitantly-priced free meals and alcohol?

Austen Allred @Austen

“Starve”

Objectionable displays of excess included bean bag chairs, ping pong tables, and, at some companies, a daily free lunch. Pay is exorbitant, benefits are best in class, and if you want a kid? Your bespoke fertility procedures are on the house. The perks are not the problem.

The problem is, despite historic spending, the last ten years of tech weren’t defined by explosions of innovation. The last ten years of tech were defined by a lot of ten- or twenty-year-old monopoly products simply getting bigger. Monopoly growth is not necessarily a bad thing. In fact, in many cases it’s a good thing. But it’s not the kind of thing we’ll see in history books.   

There are, of course, many examples to the contrary. In terms of meaningful technological advance that also dovetails with success in business, companies like SpaceX, Tesla, and Palantir come to mind. More recently, we have Anduril. Then, the one vertical venture capital hasn’t run from is artificial intelligence, where we have seen incredible progress.

I’ve recently watched with surprise as popular “tech positive” influencers turned on Elon for — roughly their position — “destroying” Twitter. Critiques of the man have included his apparent callousness while laying off employees, his dangerous disregard for journalism, and his “embarrassing” approach to product development. This last piece has been, I think, largely a repulsion grounded in aesthetics. Elon is building in public, and therefore making mistakes in public.

This man has been running Twitter for two weeks. Elon is easily the most successful “tech positive” CEO since Steve Jobs — a pioneer in modern payments responsible for the entire private space industry, rockets that land, the mainstreaming of electric vehicles, a new satellite network connecting the planet — let’s just table the topic. We all love rockets. Hooray for rockets. I want to go ahead and talk about the aesthetics of Elon’s invisible workshop.

The notion all this public brainstorming and building and hacking and shipping and failing and starting over is unseemly, or is in some way a bad look for tech, is also — from a “tech” influencer — just incredible.

This is simply very fun.

We’re laughing because it feels like Elon is listening to us, no matter how stupid the suggestions. In fact, this is just what Twitter is, and Elon, the Commander in Chief of Twitter, is showing us how to use the platform. He’s very good at it. But I get it, different strokes for different folks.

This is winter now. If you can’t find food you die. Twitter was losing money when Elon took the company. We’re not watching him destroy anything, we’re watching him try to save a product he believes important, and similar battles are taking place across the industry. They’re just happening in private.

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🎙Podcast & YouTube Recommendations🎙

• Making Sense Of The FTX Catastrophe and Elons First 2 Weeks Owning Twitter - Sharp Tech

• Reactions to the midterm elections - Derek Thompson

• 2 Bears 1 Cave Interview with - Bert Kriescher an Neal Brennan

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🔮Best Links of The Week🔮

• "The producer price index rose 0.2% in October, below the 0.4% estimate. A significant contributor to the slowdown in wholesale inflation was a 0.1% decline in services, the first outright decline in that measure since November 2020. On a year-over-year basis, PPI rose 8% compared to an 8.4% increase in September. In other economic news, the Empire State Manufacturing Survey for November registered a reading of 4.5%, much better than the estimate for a -6% reading." Source: CNBC - Link

• "Michael Lewis, author of Moneyball and The Big Short, has been following FTX founder Sam Bankman-Fried for the past six months to write his next book. And while the potential ending of Lewis’s book has obviously changed in the past week since FTX’s $32 billion implosion, Lewis is already shopping around the movie rights, according to a new report from The Ankler. Matthew Snyder from talent agency CAA, which represents Lewis, reportedly sent around an email on Friday to Hollywood bigwigs explaining that Lewis has been interviewing Bankman-Fried for months. Lewis and Bankman-Fried have been talking about everything from the FTX founder’s childhood to his first successes on Wall Street, and it seems certain that Lewis will have the inside story on everything that happened before FTX filed for bankruptcy on Friday." Source: Gizmodo - Link

• The Beginning of the fall of Crimea. Over the weekend, the Ukrainians recaptured the city of Kherson from the Russians. A huge strategic win for Ukraine and only the first of many humiliating retreats & defeats that the Russians will face.: Peter Zeihan - Link

• Canada Will Soon Offer Medically Assisted Death Aid. You can’t see depression on a scan. With the exception of dementia, where imaging can show structural brain changes, “in psychiatry, really all you have is the patient’s story, and what you see with your eyes and what you hear and what the family tells you,” Source: National Post - Link