Marvin’s Best Weekly Reads Nov 20th, 2022

“It is not the strength of the body that counts, but the strength of the spirit.”― J.R.R. Tolkien

  1. Bullish on commodities as well.

2. Great news in Ukraine!

3. “In other words, despite all his WW2 throwback rhetoric, Putin is not Stalin, and the army currently getting blasted to bits on the banks of the Dnipro is most definitely not the Red Army.

Meanwhile, the country is having trouble producing new weapons (thanks in part to effective Western sanctions), and is pulling increasingly decrepit equipment from old Soviet storage facilities.

Where the USSR was an inefficient but vast manufacturing powerhouse, Putin’s Russia is a corrupt petrostate dependent on imports of foreign technology.

In other words, Russian military and economic weakness is now simply a fact of our world. This makes it simply impossible for Russia to serve as a “pole” in a multipolar world order, no matter how much anyone would like it to.

The world has simply progressed beyond the need for Russian power, and the faster all the remaining fence-sitters wake up to that fact, the better. Putin’s Russia should be treated as a dangerous, nuclear-armed, dysfunctional rogue state. The goal should be to contain it, and contain the damage from the chaos it causes, rather than to appease it by offering it some facsimile of the great-power respect we showed the old USSR.”

4. “In sum, the way the Russians have publicly announced their withdrawal with large forces still on the west bank, and the way they seem to be retreating into Kherson, does make it seem that they will try to extract a significant cost for the city. I’m not sure they can, and they could not hold it for long with the supply issues, but its something to watch in the coming days.”

5. “My general sense is that the FTX situation was caused by 3 Arrows Capital, which in turn revealed Sam Bankman-Fried and Alameda to be screwed in exactly the same way. Alameda had a $500 million loan with Voyager Digital, which caused them to lose enough money that Bankman-Fried transferred at least $4 billion of FTX funds into Alameda’s accounts, including FTT tokens and, somehow, shares in Robinhood, which SBF explained as “rotating a few FTX wallets.”

It will take a while to understand exactly how often and in what form Bankman-Fried used FTX funds as collateral, but I would be surprised if this were the only time, and I would imagine there are far more grizzly and egregious things to come out.

Bankman-Fried’s actions call into question every single cryptocurrency billionaire, every specious story about some plucky guy who “hit it big” on Bitcoin, and every muddy tale and rationalization of why someone is allegedly worth so much money now seems utterly disgraceful to believe.

6. “While I am supremely bullish on the prospects of crypto in 2023 (I know the date keeps slipping, but I reserve the right to change my mind in the face of market conditions), I believe we are about to trade to new lows as everyone wonders which crypto household name will go bankrupt next for lending money to FTX / Alameda.

Before I end this essay, let me be clear: centralized exchanges will always face these issues of mistrust on behalf of their customers. FTX was not the first high-profile exchange to fail and it won’t be the last. But throughout all this, blocks on the Bitcoin, Ethereum, and all other blockchains were still produced and verified. Decentralized money and finance have and will continue to survive and thrive in the face of the failures of centralized entities.”

7. “Success can be our undoing when we’re promoted beyond our true capabilities. The Peter principle holds that because people get promoted on the basis of prior performance, they will inevitably rise to the level of their incompetence. Our brains make it easy for our ambition to exceed our ability: The Dunning-Kruger effectdescribes a demonstrated cognitive weakness, that the less we know about something, the more we overestimate our knowledge. That’s why stupid people, and people who make great cars and then buy media companies, are so dangerous.

The inevitable collapse of the powerful is a good thing, and I’m glad we live in a universe that embraces this as a governing principle. Absolute power and wealth concentration are incompatible with the innovation that characterizes humanity’s upward movement. The crashing to Earth can cause collateral damage, but it’s a creative destruction.

What is the lesson, what can be learned? Every day, no matter how successful we become, we need to earn our success. We need to be kind and appreciative; we need to surround ourselves with people who will push back on us and question our beliefs and actions. We need to demonstrate humility. You are never more susceptible to a huge mistake than right after a big win, when you begin to believe the falsehood that your success is all about you. Yes, you’re brilliant and hardworking, but greatness is in the agency of others, and timing (and other features of luck) is everything.

The flip side is less discussed but more important. When you’ve fucked up, when things are going poorly — a relationship ends, you have professional disappointment, or you’re in financial stress — forgive yourself. Mourn, then move on.”

8. “Every founder, as a steward of capital, is responsible for where they decide to invest their investor’s dollars as they build their business. I’m really hopeful that John Foley has learned his lesson from Peloton, and will, in fact, “show profitability and have a real focus on unit economics.”

But VCs could do a better job about not just funding the known quantities, but identifying people most capable of allocating capital effectively. People who think differently, who have unique perspectives on building companies that people really need. The very best founders are, themselves, phenomenal capital allocators. The most valuable skill for a founder to have, as they scale their business, is the ability to best allocate dollars to the most valuable people, projects, and priorities.

In business building, capital allocation isn’t just a VC’s game. It IS the game.”

9. So many useful idiots out there on the hard left and hard right. Taiwan is NOT China (thank goodness)

10. “To paraphrase Buffett, the tide has gone out and a lot of nudity is being exposed. That doesn’t mean it’s a good use of time to sit on the beach and watch the spectacle.

In the game of compounding, the number one goal is stay in the game. So make sure your mind and body get proper recovery. Cultivate your resilience. Remember Soros: “When I don’t have to, I don’t work.” Integrate the lessons but absolve yourself from honest mistakes.

Because no matter how bad it could get, even Singer acknowledged that after getting something wrong the next step is to “shrug and try to make some money.”

Bring out your dead trades, your bad decisions, and set them on fire. Cleanse your palate. On we go.”

11. Crazy times from Crypto: always a good discussion. FTX and a good perspective on US midterm elections.

12. “Put another way, the cost of rebuilding Ukraine is directly related to the speed with which Kyiv can bring about a strategic decision on the battlefield and force Moscow to negotiate terms that secure the country’s territory. Here lies the paradox of the European “Marshall Plan for Ukraine” project: Each day that military assistance to Ukraine is not provided in sufficient numbers delays the day of Russia’s defeat, thereby raising the cost of bringing Ukrainian infrastructure, its industry, and its military back to a level that attracts private investment.

The Oct. 25 conference was important in that it conveyed the right message about Europe’s commitment to help Kyiv after the war. But the principal focal point must be military assistance, for if the Ukrainians fail to defeat the Russian military and regain their illegally seized national territory, this conference, despite all its ambitions, will be remembered as yet another EU project not grounded in reality.”

13. “While Musk has all the right to implement processes and management structure as he sees fit, I find no excuse on how he is doing all of this. He offers no compassion or respect for employees who helped build Twitter, and employees feel that he is outright hostile towards them. Just the fact that in two weeks, he managed to send a single email to employees — and that email was an ultimatum on returning to the office effective immediately — summarizes his attitude towards employees of the company he bought. Elon has broken all unwritten — and may written — rules of how tech companies operate.

Tesla and SpaceX are both companies where hardware is arguably just as important — if not more important — part of their success than software. Elon Musk turned both companies into roaring successes with a similar management style which he’s bringing to Twitter. It will be educational to see how this same management style will work at Twitter, which is a pure software company, which does not have an inspiring mission or challenging problem space that could compare with Tesla or SpaceX.”

14. Good rundown on the FTX debacle. This will set the Crypto industry back a decade.

15. Hard to argue against this. No wonder there is little faith or trust in our elites.

“They are travelling from all over the world to Egypt, will that not use tons of fossil fuels and emit massive amounts of C02? Yes, indeed!

In fact, they used a whopping 400 private jets to travel to the climate conference. You literally cannot make this up.

A source close to Egyptian aviation authorities told AFP that “more than 400 private jets landed in the past few days in Egypt”.

Here the elite are all gathering to scheme how to reduce C02 emission by telling you that you must eat bugs and stop driving your car to save the planet, meanwhile they are all travelling on private jets. This is hypocrisy at the highest level.”

16. Interesting approach here For SaaS Founders: Dolphin approach.

“Dolphins spend most of their life underwater, but they come up for air occasionally. This strategy works well for SaaS growth too.

SaaS companies can operate underwater (unprofitable) for long periods and still create substantial value. The vast majority of public SaaS businesses are unprofitable. However, there are substantial benefits to periodically coming up for air (operating profitably).”

17. More on the Dolphin Strategy for SaaS Growth.

18. “Unfortunately, there is no greater return on investment in America today than bribing politicians and regulators. SBF and his network understand that reality. They spent the days before the collapse of FTX delivering massive resources into fixing the regulatory levers of power in D.C. to their liking.

During the crypto token bear market, Sam Bankman-Fried and his collaborators were trying to create a regulatory monopoly for their flagship FTX digital currency exchange, along with their massive venture capital empire, vacuuming up an incredible amount of equity in the digital token space.

Like most Ponzi schemes, things often great, at least from the outside looking in, while the Ponzi is operating. FTX was running Super Bowl ads, putting its name on stadiums, recruiting A list celebrities, actors, and athletes, all to prop up the operation.”

19. “Day by day, Ukrainian culture emerges, as Russian culture submerges. The sooner and more decisively Russia loses this war, the better it will be for the Russian future.”

20. “Logistics means having a physical and mental plan for getting around in life; discipline means that you consistently put in the effort to be able to harvest the compound interest of your plans; and being open-minded means simply that you have developed the ability to accept two opposing ideas as both potentially being true.”

21. “Little about Caballero’s aesthetic screams world-class: The slight 83-year-old works out of a nondescript building in suburban Dallas. His office is outfitted with gray carpeting and drop ceiling tiles. He shares the building with a waste management company.

But the agent’s numbers don’t lie:

In 2020, he set a world record of 6.4k home sales, presiding as the listing agent over ~$2.46B of sales volume.

This year, he’s on pace to sell ~6k homes in Texas — a rate of ~16 sales every day.

In an industry teeming with whales, Caballero has become a near-mythical force — a real estate megalodon. And he’s done it without relying on mega-mansion sales and high-rolling clientele.

All he did was come up with an idea that made homebuilders’ lives slightly easier.”

22. “If we allow this overreach when it comes to our finances, it’s only a matter of time before they begin to rationalise this kind of surveillance over other aspects of our lives. Give them an inch, they’ll take a mile.

Awareness of these matters is key. At the very least, I would encourage you to share newsletters like this, or news stories of current proposals in the Netherlands and the United States with others whenever you read them.

Financial privacy is our right. Don’t let that right be taken.”

23. “This is why I am still long crypto. Despite its many flaws, I believe it has miraculous potential to improve our world. Self-sovereign money, smart contracts, and digital property rights are radical, revolutionary ideas that we are in the early innings of understanding and applying.

In a matter of decades, we may look back on the state’s rigid stranglehold on money as a quirky artifact, an obvious overreach.

Decentralized finance (DeFi) has its own quirks, but it has held up well, by comparison, showing that code is often less corruptible than people. We may see it bloom more fully in the coming years.

The second reason I am still long on crypto is the people. That may sound counterintuitive given the description of the casino we are currently in. Who wants to be surrounded by a swarm of gamblers?

While crypto may have plenty of them, it also has some of the most fiercely intelligent, driven, and gritty people I have met.

Though infuriated and disappointed by much of this week, I have also been reminded of these qualities. Founders, investors, and operators I speak to know their jobs have become much harder and are determined to continue, undaunted. These people believe (as I do) the movement is too important to abandon; it will emerge stronger.”

24. “The lesson here is simple. If you buy computer coins, you do the following: 1) send immediately to cold storage and 2) if you need cash then you send it back to exchange and immediately sell. There is *some* risk here but the goal is to limit the *time* your assets sit on ANY exchange. This includes Binance, Coinbase etc.

More likely than not the contagion spreads. People who think this will be contained just to crypto are short sighted. Lots of rich people were buying homes, boats and cars because they had thousands or millions on FTX. When everything comes crashing down it will impact the broader economy.”

25. “In other words, I look out in the world and I don’t see a polycrisis; I see an emerging polysolution. The looming threats of climate change and authoritarian revanchism, combined with the shocks of Covid and inflation, have stirred both policymakers and businesses to action. And many of those actions will end up addressing multiple crises rather than just one.

I want to venture out on a limb here and say that this is not a coincidence. A lot of the buffer mechanisms I described above are political in nature, and they share the basic description of “human beings coming together in a crisis to address their collective problems”. During good times, human beings tend to seem irresolute and divided as pursue our individual goals and fight over the pie.

External shocks can bring the entire system crashing down, but they can also spur humans to get serious and start working together.

This is not to say that “hard times make strong men”, as the popular meme goes. It’s that we were “strong men” (and women, and nonbinary persons, etc.) all along, and we just didn’t have a reason to buckle down and get serious about solving society’s problems.

You know how in the fantasy stories, the Hero of Legend always mysteriously appears just in time to fight the Great Evil? It’s not luck, it’s selection bias. If the Hero of Legend appeared in normal times and there was no Great Evil around, they would just end up playing in a grunge band or coding a mobile app.”

26. “Now, the game is over for Bankman-Fried. Just weeks ago, he was a Democratic megadonor, one of the richest men who ever lived, the very face of what many in Washington and on Wall Street thought was the future of the economy: someone who could unlock the potential of cryptocurrencies and still walk with ease through the traditional world of money and power.

In less than a week, it was all annihilated, with questions of fraud and admissions of misappropriating his own customer’ funds exposing his empire to be a house of cards.

On Friday, FTX and his hedge fund, Alameda Research, filed for bankruptcy, and he resigned as CEO of the exchange. Government officials in the Bahamas, where his companies are based, seized what was left of their assets.

Investigators are reportedly probing his company and him, personally, to understand what happened — investigations that are likely to delve into whether or not the former wunderkind (an MIT physics major whose parents are both Stanford professors) defrauded his way into the most rarefied of positions. Sequoia, like other VCs who plowed money into the company, proactively marked down their stake to zero.

It’s not clear what’s going to happen with FTX or the people whose money is trapped on the platform. The repercussions are likely to be even deeper than the Terra blowup earlier this year, with companies he was about to rescue now likely out of luck. The company had apparently been expanding in sub-Saharan Africa, where bank access and resources that could help people get their money back are spotty.

Bankman-Fried has repeatedly apologized on Twitter. Ryne Miller, a lawyer for FTX who reportedly pushed back against its internal practices, didn’t want to talk when I reached him by phone and referred me to a press release. Bankman-Fried hasn’t really offered a convincing story of how it all collapsed so quickly, though what has emerged has been damning. Still, it’s not clear that Bankman-Fried views this as anything more than a game that was to be won or lost.”

27. “Not much has changed in the 365 years since Palmstruch’s bank collapsed, except for the whole “jailing bankers” thing. As long as there have been custodians of money, maturity mismatches, and varying degrees of liquidity among asset classes, there have been confidence losses that catalyze runs.

Fraud is almost always found in the ashes of collapse (although history shows that outright fraud is usually a mid- to late-stage event). At some point in the boom-bust cycle, enterprises engaging in a little bit of chicanery to skirt through an otherwise manageable crisis find that once the culture accepts having stolen a penny, ethical incrementalism makes stealing nickels, dimes, and quarters all but inevitable.

The immunity from prison that fraudsters have thus far enjoyed in the currently bursting market bubble seems set to expire. In the past week, a fraud so brazen collapsed so spectacularly that even today’s batch of feckless regulators will be forced to act. Although the shockwaves from the rapid implosion of Alameda Research and FTX are still emanating from the Bahamas, a tsunami of consequences will barrel towards financial and political shorelines the world over in the weeks and months ahead. Investors are suddenly reacquainting themselves with the concept of counterparty risk (again!), and schemes that need a steady stream of fresh fiat to prop themselves up will soon drown in the contagion.

And while it was the traditional media that blindly paraded Sam Bankman-Fried (SBF) to celebrity investor status, a combination of new citizen journalism and old-school short sellers played pivotal roles in exposing the scam. Let’s dig in.”

28. Very good news in Kherson: Crimean peninsula next! #SlavaUkraini!

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Marvin Liao

Ever curious: Tsundoku, Reader, Aspiring Shokunin, World traveller, Investor & Tech/Media exec interested in almost everything! www.marvinliao.com