james22

How'd that work out this year?

JB. Yep. Okay. I wanna talk about tech. So you wrote this thing about the second half of the chess board and you're talking about, I guess exponential growth. Tell, tell us about this analogy that you're using and why you wanted to write about that over the last week. NC. Yeah, so there's an old story that technologists use and, and it's kind of a fable about the origin of chess in India in the 12, 13 hundreds. And the story goes that the minister that invented chess goes to his local ruler and says, I have this new game. King loves it. Says, what kind of reward do you want? I love this game. You know You can You know have all the gold in my treasury or whatever you want. And so the, the minister says, no, all I want is this. And he points to the chess board and says, I want you to put one grain of wheat on the first square, two on the second, four on the third, eight on the so forth double every time. And whatever grain there is on the chess board at the end, that's my reward. The king thinks he's getting off easy. He calls his treasure, starts doling it out. And the first half of the chess board's pretty much okay, it's like 279 tons of wheat in the first half of the chess board. The problem is in the second half of the chess board. 'cause you've doubled so much and you keep doubling the numbers in the second half of the chess board get mammoth. There's more grain on the 32nd square than there is in the whole first half. Right. Right. By the end of it, you've got like 1500 times the amount of wheat production in the world today. So either the king one story goes, the king rewards the minister for being so clever gives him a better job. The other one is he has a guy kill on the spot. Yeah. Because he is You know sassing the king and that's not good. Yeah. And the analogy to tech is more, Gordon Moore wrote Moore's Law in 1965 with a couple of already turns of improvement in the semi cycle. JB. Moore's law is that the, the speed of the chip doubles every what, two years? NC. It's the power per dollar doubles every two years. Or the size it'll shrink by half every two years. Yeah. Yeah. So the two of those things together, we now have had 32 turns of Moore's law since 1960. So we're literally at the 33rd square of the chess board. JB. Okay. Right now where things start to get wild. NC. Where things start to get wild because you've already permeated the, in this case society with so much technology and now AI comes along. And my thinking was we don't need another consistently doubling of Moore's Law to keep working. AI already starts with this massive platform and we're in the second half of the chess board with AI as the driver, not just the hardware and cost per computing. MB. Yeah. Great analogy. Love It. Okay. What are the implications for investors? NC. The implications come down to thinking about what stocks work. And it's, as much as we all like to sort of talk about how expensive tech is and what these multiples look like, there is a rationale behind them. There's a reason why those stocks have worked so well for so long. They have worked the first half of the chess boards so effectively. Right. The second half, it's not gonna change. You know and I hear so many times. Okay. Whether it be value investing reverting to some kind of long-term mean or eventually things have to stop. Moore's Law has to end. And the point is it doesn't. Yeah. 'cause we have this now huge base and every next double, even if the doubles only happen every five years instead of every two years, it's still a huge amount of change. MB. Look at, look at this chart from Goldman. This. So this is world technology compared to the world M T and the world ex-MT and technology is just in another universe. This is earnings per share by the way. Yeah, not even price earnings per share. So I pulled a couple of numbers from this chart. So in MSCI world, the top five names, global stocks, everything Apple, Microsoft Alphabet, Amazon, Nvidia, they are 14% of the market cap of all stocks in the world. Yeah. And that's why. JB. So there is now an emerging way of thinking about this, where we're not talking about the chip level anymore. Now we're saying one unit of compute is actually a full data center. Hmm. Seriously, like the data center is the computer. If that's the realm that we're going into. And it increasingly feels like we are, that I think that upends a lot of what we used to think about when we traditionally tried to value companies in this, in this ecosystem. Because there aren't gonna be 50 companies running their own data centers. They're just too expensive. So we have reached a point where only a few companies are gonna be able to actually com compete in this world. They're gonna largely have this to themselves. So if the unit is no longer the chip or the, or the computer or even the server, the unit is actually the full data center. And that's how we're starting to think about this. I think a lot of people are gonna have to get more comfortable with technology companies that trade 30, 40 times earnings and could conceivably grow 20% plus for a decade to come. Unless all of a sudden we, we all just decide we're not interested in making progress anymore and everything. Like everything is good how it is right now, let's just stop. That's the only thing that can stop where I think this is all going. So I don't know how that factors into Moore's Law. But I do know that when I listen to technologists on podcasts, this is now the way they're talking, the GPU doesn't matter. The data center filled with GPUs is the difference maker and is the thing that's gonna drive spending and CapEx and r and d and that's like a whole new, that's a whole new ballgame. NC. The same exact thing happened with mainframes in the seventies and eighties. Okay. Remember Ross? Remember Ross Perot? Yeah. EDS. That was the entire EDS pitch. Let us literally buy your data center from you and then will run it. Okay. And this is just the next level. Yeah. Like forget about having to have a computer You know a PC or an office computer will handle everything in the cloud. Yeah. JB. It's happening. Right. The power of any one individual computer is not terribly important. Yeah. It's, it's where the work, where the work is being done. And that's why I think Snowflake is a stock that we're all gonna be forced to pay attention to for the next 10 years. Obviously Nvidia, and then you look at like some of the field programmable g arrays. So you look at like a lattice semiconductor, that stock's going crazy outta nowhere. People discovering that. And they're saying, wait a minute. Now we're at a point where people that wanna do ai, you actually can't prefab the chip for these companies. You have to just give them a chip that they can program in the field. Like literally program it to the specs of whatever they're building. NC. That's a whole new world. So I feel like we might be be still relatively early in semiconductor stocks. You know in the types of networking companies that are supporting these data centers here. MB. Here's pushback but not pushback. So the NASDAQ 100 and I know a lot of that is outside of these chip names, but the NASDAQ 100 has compounded at 19% the year since 2013. It's a lot of Wealth creation. The counterpoint to what I just said is that Nvidia is training according to Goldman at 26 times, estimated 24 month forward earnings. So two years from now, for a company that's growing like this and defining it, what could be the biggest game changing technology that the world has ever seen? That doesn't sound that rich. NC. It doesn't. It doesn't. I mean, growth investing is not so much about valuation as it is about momentum. You know. And that's why momentum and growth together are two most powerful factors in investing. And yeah, I mean valuation matters to some degree always, but ultimately is not in the short term. Where are you gonna be? You know it. You're right. Not on the Cape You know shoulder PEs predict zero five-year returns.

Maybe the better question: on which square are we on the chessboard?

Worse, we've had similar before (SARS, avian/swine flu, etc.) which played out differently.

Yeah, I don't think it was intended to be actionable. Just a recognition of what an odd period it has been.

Interesting. Thanks, drzola.

Do efficient markets drop $20 bills?

That's why they can't just do whatever they want, sure. I was curious why Luca believed they shouldn't. Innate rights (secured and protected by law) wasn't his answer.

U.S. Commerce Secretary Gina Raimondo said U.S. companies have complained to her that China has become "uninvestible," pointing to fines, raids and other actions that have made it risky to do business in the world's second-largest economy. . . . "Increasingly I hear from American business that China is uninvestible because it's become too risky," she said. Raimondo said American firms are facing new challenges, among them "exorbitant fines without any explanation, revisions to the counterespionage law, which are unclear and sending shockwaves through the U.S. community; raids on businesses – a whole new level of challenge and we need that to be addressed." . . . "All of that creates uncertainty and unpredictability," Raimondo said of recent Chinese actions. "So businesses look for other opportunities, they look for other countries, they look for other places to go." Referring to both old and new business restrictions, Raimondo said, "The sum total of which is making China feel too risky for them invest." https://www.reuters.com/markets/us-commerce-chief-set-meet-chinese-vice-premier-beijing-2023-08-29/

"You can't make an omelette without breaking eggs," Richard.

Why not?

Westerners have projected power disproportionate to their numbers since ancient Greece. https://www.amazon.com/Carnage-Culture-Landmark-Battles-Western/dp/0385720386/

Over lunch I took care not to steer the conversation in any particular direction and instead let it take its own course. The feelings and impressions I heard from people whom I had never known to be particularly political were grim with discouragement. For their safety, I must withhold their names, but they quickly offered up the impression that their country had recently been closing in on itself, and the resulting sensation, one said, was like suffocation. One of them told me that I had lived in China during its heyday, a feeling I immediately understood but had never formulated myself. https://foreignpolicy.com/2023/08/30/china-post-covid-19-tourism-foreigners-visitors-economy-society/

2,500 years (Western Ascendency) > 40 years (China's Economic Miracle)

Are you posting from your freshman dorm room, Luca?

He did qualify with on pace. But more significant than the duration is the negativity: 2023 will need be +18.9% for 2021-2023 to avoid being the worst three-year period since 1928. That seems unlikely.

When a nation is clearly planning for something, it is best to acknowledge it and make your own plans accordingly. . . . "What I think is they're on their five year [plan], and if you go back three different budgets for them, or four years, over our 20 years in the desert, they focused very clearly on delivering a force capable to take on the United States. And the speed and acceleration that they have shown and they are delivering, right, when you talk about outputs, we all look at the Chinese to understand, truly, where they are, what they're doing. The largest military buildup since World War Two, both in conventional forces and then strategic-nuclear. J-20s are in full-rate production, ships coming off their industrial baseline at numbers that only replicate what we did in the Lehman time and the 600 ship Navy kind of time frame. Again, nuclear build up... is the largest and continuous we've seen. So those are the concerning pieces. And that's what we're walking into." https://cdrsalamander.substack.com/p/the-prcs-buildup-is-not-a-jobs-program

So, what does all this mean? It's simple: rising rates reduce the value of bonds (which are paying lower rates that prevailed when they were issued), which goes a long way to explaining the banking crisis earlier this year. But this is actually good news for investors today because they no longer face the TINA ("there is no alternative") dilemma when thinking about whether to invest in stocks or bonds/cash because both are now attractive.

“Geothermal has historically been overlooked,” Sen. Lisa Murkowski, R-Alaska, said at a hearing. But with innovation, she added, “the potential is out there, I think, that’s pretty extraordinary.” https://news.yahoo.com/vast-source-clean-energy-beneath-190543814.html

From Tilson's email today.