Weekend Briefing No. 340
Welcome to the weekend.
Music is always an important part of my life. During quarantine, I’ve been listening to more music than ever, but I miss sharing music with others in real time. No concerts. No karaoke. All my friends know how much I’m missing my karaoke. I’ve been playing around with a couple services that are helping me get my socially distanced groove on during lockdown.
Auxparty—This is a place to listen to music with friends in real time.
Zoomaroke—The multi-talented DJ Purple hosts dance karaoke over Zoom. I gave it a shot last weekend and had fun. I may be there again this weekend. Who knows?
Anyhow, those are things I like. Maybe you will too.
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166,000,000—According to the Brookings Institution, 50.7 percent of U.S. residents were under the age of 40 as of July 2019, meaning that the combined Millennial, Gen Z and younger amounted to 166 million Americans. Gen X-Boomer-and Ups comprised 162 million people.
98—Live Nation, the company behind many concerts and festivals, saw revenue down 98 percent year over year in the second quarter of 2020.
73—Rideshare and delivery company Uber reported that in the second quarter of the year, their gross bookings for human transportation dropped 73 percent. However, their food and goods delivery business grew 113 percent.
What’s Up With the Stock Market?
What’s behind the crazy market rally? The S&P 500 is up ~50% since its March low and back near its all-time high. The mind-blowing rally is taking place as the economy saw its worst quarterly gross domestic product contraction in 70+ years. WTF is going on? The billionaire investor Howard Marks recently published one of his famous “memos” to give his take: (1) The Fed’s low interest rates are boosting stock valuations. The S&P 500 traditionally trades at a price-to-earnings (P/E) ratio of 16x. But with interest rates near zero, the P/E ratio should trade at a 50 percent premium (24x) or higher (all things being equal, a higher P/E = higher stock price). (2) Facebook, Amazon, Apple, Microsoft and Google (FAAMG) stocks, which make up 15-20 percent of the entire market, are exceptional. On average, the FAAMG stocks are up 36 percent on the year, but the median S&P 500 stock is down 11 percent. The bull argument says the giants’ rise can continue because they have scale and tech advantages protecting them from the business cycle’s swings. They benefit from corona-fueled shifts to digital, are growing faster than behemoths of the past and have huge cash piles. If making sense of the market comeback still doesn’t make sense, Marks says, listen to some Charlie Munger wisdom: “It’s not supposed to be easy. Anyone who finds it easy is stupid.” The Hustle (6 minutes)
Amazon & Simon
The largest mall owner in the U.S. has been in talks with Amazon.com Inc., the company many retailers denounce as the mall industry’s biggest disrupter, to take over space left by ailing department stores. Simon Property Group Inc. and Amazon are exploring the possibility of turning some of the property owner’s anchor department stores into Amazon distribution hubs, according to people familiar with the matter. Amazon typically uses these warehouses to store everything from books and sweaters to kitchenware and electronics until delivery to local customers. For Amazon, a deal with Simon would be consistent with its efforts to add more distribution hubs near residential areas to speed up the crucial last mile of delivery. But for Simon, any deal to surrender prime space to Amazon would signal a break from a longtime business model for malls: reliance on a large department store to draw foot traffic to neighboring shops and restaurants. Wall Street Journal (8 minutes)
Bill Gates is disappointed in the U.S. response to COVID-19 but has some optimism. You have to admit there’s been trillions of dollars of economic damage done and a lot of debt, but the innovation pipeline on scaling up diagnostics, on new therapeutics and on vaccines is actually quite impressive. That makes me feel like, for the rich world, we should largely be able to end this thing by the end of 2021, and for the world at large by the end of 2022. That is only because of the scale of the innovation that’s taking place. Now whenever we get this done, we will have lost many years in malaria, polio, HIV, and the indebtedness of countries of all sizes and instability. It’ll take you years beyond that before you’d even get back to where you were at the start of 2020. It’s not World War I or World War II, but it is in that order of magnitude as a negative shock to the system. WIRED (11 minutes)
In 2015, Colin Huang founded his third company, Pinduoduo (PDD). By June of 2020, it had become China’s second largest ecommerce company and was valued at over $100 billion in the public markets. How did a company that helped farmers sell fruit on the internet rise so fast in a market dominated by Alibaba and JD? Pinduoduo, meaning “together, more savings, more fun,” eliminated layers of middlemen and flipped the retailing model from being supply-driven to demand-driven. The team used a mobile-first approach that gave it a fundamentally different product DNA than incumbents. It used fruit as a wedge to combine consumption with entertainment and created a vertically integrated gaming company. It took advantage of down payments from suppliers and used stretched payment terms to create float out of customer transactions. It used that float to fund customer acquisition, and then leveraged clever growth tricks on an emerging distribution channel (WeChat) to acquire hundreds of millions of overlooked customers for practically free. Turner (21 minutes)
Alphabet sold $10 billion of bonds on Monday at record-low rates, including $5.75 billion of sustainability notes. Alphabet will use this week’s bond sale to fund organizations that support Black entrepreneurs, businesses impacted by COVID-19, affordable housing and green buildings, among others. Alphabet has committed to providing impact measurements for the projects that are funded through this issuance. Alphabet hopes to help develop this new market for environmental, social and corporate governance (ESG) bonds. Technology giants may join the rush to sustainable finance after this week’s record bond sale from Alphabet. Issuance aligns with growing investor focus on social and environmental matters, and it’s being done at very low rates. Alphabet saved about three to five basis points on the funding cost by doing the deal in an ESG forma. Borrowers with more debt outstanding could save as much as 15 basis points. Bloomberg (6 minutes)
Explaining Machine Learning
There is a growing demand to be able to “explain” machine learning (ML) systems' decisions and actions to human users, particularly when used in contexts where decisions have substantial implications for those affected and where there is a requirement for political accountability or legal compliance (1). Explainability is often discussed as a technical challenge in designing ML systems and decision procedures, to improve understanding of what is typically a “black box” phenomenon. But some of the most difficult challenges are nontechnical and raise questions about the broader accountability of organizations using ML in their decision-making. One reason for this is that many decisions by ML systems may exhibit bias, as systemic biases in society lead to biases in data used by the systems (2). But there is another reason, less widely appreciated. Because the quantities that ML systems seek to optimize have to be specified by their users, explainable ML will force policy-makers to be more explicit about their objectives, and thus about their values and political choices, exposing policy trade-offs that may have previously only been implicit and obscured. As the use of ML in policy spreads, there may have to be public debate that makes explicit the value judgments or weights to be used. Merely technical approaches to “explaining” ML will often only be effective if the systems are deployed by trustworthy and accountable organizations. Science (25 minutes)
Viral on the Subway
What happens to coronavirus on the subway? The subway’s ventilation system moves air within train cars more efficiently than restaurants, schools and other indoor settings, according to aerosol experts. But it is not a guarantee to protect against the virus. Watch this visualization to learn how the system works. New York Times (4 minutes)
Golden Hill is the spectacular first novel from acclaimed nonfiction author Francis Spufford. The story follows the adventures of a mysterious young man named Mr. Smith in mid-18th century, 30 years before the American Revolution, traveling fresh off the boat to a small town on the tip of Manhattan Island. One rainy evening in November 1746, this handsome stranger arrives at a counting house door on Golden Hill Street. Mr. Smith is amiable, charming, yet strangely determined to keep suspicion shimmering. For in his pocket, he has what seems to be an order for a thousand pounds, a huge sum, and he won’t explain why, or where he comes from, or what he is planning to do in the colonies that requires so much money. Should the New York merchants trust him? Should they risk their credit and refuse to pay? Should they befriend him, seduce him, arrest him or maybe even kill him? Amazon
Most Read Last Week
Critical Theory—These discourses of power, moreover, never end; there is no progress as such, no incremental inclusion of more identities into a pluralist, liberal unified project; there is the permanent reality of the oppressors and the oppressed.
America Defeated—Despite ample warning, the U.S. squandered every possible opportunity to control the coronavirus
City Brain—China is an ideal setting for an experiment in total surveillance. Its population is primarily online.
About the Weekend Briefing
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The fishing tackle manufacturer I knew had all these flashy green and purple lures. I asked, “Do fish take these?” “Charlie,” he said. “I don’t sell these lures to fish.” –Charlie Munger
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