/terminal corp evolution 2020 Q2

2020 Q2

Some mental models reviewed this quarter.

0. Shifts in world power.
The race to being the most advanced economy.

  • by 1900, the UK had lost its position as most advanced nation to USA.
  • read the first page (ideally the entire book) of "The American Invaders" written in 1901:
  • https://archive.org/details/americaninvader00mckegoog/page/n38/mode/2up
  • Germany had decoupled from Western Europe and was defying USA.
  • https://ourworldindata.org/grapher/average-real-gdp-per-capita-across-countries-and-regions?time=1870..1916&country=DEU~GBR~USA~Western%20Europe
  • Innovations:
    1893: Diesel engine - Diesel
    1897: Cathode-ray tube - Braun
    1898: Aspirin - Bayer
    1891: Incandescent lamp - Edison
    1901: Assembly line - Ford
    1903: Airplane - Wright
  • back to 2020, China v USA
  • ultimate most advance skill: semiconductor industry
  • if/when captured by China, power shifts
  • "State-of-the-art chip factories now cost more than $10 billion to build, making them the most expensive factories ever built.
    If only a small number of fabs can profitably exist, the question becomes whether they will be based in the United States and its partner democracies or in China."
  • "From the perspective of some China policymakers, America is exhausted... divided politically, distracted by the COVID-19 pandemic and unlikely to risk American lives for something as abstract as a chip factory." https://steveblank.com/2020/06/18/the-coming-chip-wars-of-the-21st-century/

  • 1. Hyperinflation in an advanced economy.
    It happened less than 100 years ago.

  • Weimar Republic: Germany ~1920.
  • Takes debt to finance war. Assumption: pay back once they win the war. Suspends gold standard.
  • Germany losses. War reparations are imposed. Reparations were NOT denominated in Marks.
  • Germany starts to print money. Prices up. Hyperinflation.
    See graph: https://pbs.twimg.com/media/EbM1_N_XYAIyVB4?format=jpg&name=4096x4096
  • Store of wealth? cash flies into "ownership" of hard assets.
  • Equities go up. Not because of better future prospects. Equity is ownership. The share holder is the new land owner.
  • Biggest German companies: Bayer, Bosch, BASF, IG Farben, etc they all remain large companies.
    1 trillion marks or 1 dollar is not the question. The question is do you own a percentage of the companies that survive or not.

    "Inflation comes like ketchup out of a glass bottle.
    You keep slamming the bottle, but nothing happens.
    Until more comes out than you wish for.
    Your diner is then ruined."

  • 2. The debasement of the US dollar.
    Biggest transfer of wealth in our lifetime.
  • USD is the global reserve currency of the world, gold standard was lost in 1971.
  • COVID-19: this is not a consumer-driven crisis, it is government imposed.
  • Governments print money. Prices up. Hyperinflation.
  • Emerging currencies collapse first. Money flies into USD. Prices up. Hyperinflation. 2x
  • In attempt of defending local currencies. Tighter capital controls by emerging economies. Money flies into USD. Prices up. Hyperinflation. 3x
  • Shock of incoming capital to US economy. Decoupling of capital and productive assets (read Carlota Perez). Hyperinflation. 4x.
    Pressure on USD is insane. There is no higher layer: debasement in favor of a new global reserve currency.
  • Store of wealth? cash flies into "ownership" of hard assets.
  • Equities go up. Not because of better future prospects. Equity is ownership. The share holder is the new land owner.
    S&P measured in bitcoin not dollars: -90% since 2012
  • Biggest USA companies: Amazon, Apple, Microsoft, Facebook, they all remain large companies.
    1 trillion dollar or 1 bitcoin is not the question. The question is do you own a percentage of the companies that survive or not.
  • Banks and other financial companies with USD denominated non-productive assets: they all collapse

  • 3. The fight for ownership of assets that will survive.
    First in dollar. Then in the new reserve currency.
  • There is only so much that you can own. Money flows to assets were supply is finite.
  • Incoming capital wants ownership → markets unlocks (give liquidity) to new pockets of ownership.

  • 3.1. Make private markets, quasi-public: investment platforms:
    Real Estate: https://farmtogether.com/ etc (residential mkt https://twitter.com/glennkelman/status/1271529298445217792)
    Small businesses: https://angel.co/ etc
    Big private businesses: https://spacinsider.com/stats/ $18b YTD in SPACS ("reverse IPO"),1.3x 2019

    3.2 Already liquid markets:
    + Gold as store of value:
    average cost of a house in USA, in gold:
    1900: 250 ounce of gold
    2020: 244 ounce of gold
    Current demand: https://www.tradingview.com/symbols/XAUUSD/

    + Bitcoin as a store of value
    average value of a bitcoin, in gold:
    2013: 0.08 ounce of gold
    2020: 5.69 ounce of gold
    Current demand: pgs 7 and 12 https://grayscale.co/wp-content/uploads/2020/07/Grayscale-Digital-Asset-Investment-Report-Q2-2020.pdf

    4. Timing.
  • Impossible to know. Could take a decade to unfold, or maybe never, or maybe by end of year.
  • Timeless: The Art of Survival https://microcapclub.com/2020/04/the-art-of-survival/

  • 5. Long America.
    Land of the free, home of the brave.
  • Jeff: "It’s not a coincidence that Amazon was born in this country."
  • Elon: "SpaceX Dragon, we are go for launch, let's light this candle." https://www.youtube.com/watch?v=1gmvUPTdoP4