Wednesday, November 23, 2022

Non-Thursday Tweets (because with the current state of Twitter, running this on Thanksgiving would just be wrong)

Might as well start with...







You know what would make this even better? A Sam Bankman Fried connection.



 

And let's throw in some creepy alt-right politics.


 

Politics

Turning from Twitter to Fox.


Of course, the PM also believes in crypto...


Excellent thread.

 

And to less depressing politics


War and Revolution

New on FX. The Swedes


 

The Fourth Estate is not up to the job

Start with this handy visual explainer.

 




We'll close with pitchbot...



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Tuesday, November 22, 2022

Our standards for business disaster have gotten way too high.

Take Bob Chapek.

In a blockbuster development, Walt Disney Co.’s longtime chief Robert Iger is returning to lead the Burbank-based entertainment giant.

The Sunday night announcement by the Disney board — made shortly before Disney+ began its high-profile livestream of the Elton John concert at Dodger Stadium — stunned Hollywood.

The switch comes less than a year since Iger said his long goodbye after a storybook 15-year run as chief executive.

Disney’s board said he had agreed to serve two additional years as chief executive. Iger takes over for his hand-picked successor, Bob Chapek, who suffered a number of setbacks during his nearly three years as chief executive.


Any other year, he would have been a contender.

Under Chapek, Disney’s theme parks division posted an impressive rebound from the depths of the coronavirus pandemic [as did everything else in the tourism economy -- MP], in part through the kind of aggressive price increases that analysts believe Iger opposes. And its streaming business has grown rapidly, reaching 235.7mn across Disney Plus, Hulu and ESPN Plus.

But shareholders are no longer willing to fund streaming growth at any cost, as they were in the early stages of Disney’s foray into the business. Disney shares fell 13 per cent earlier this month after it reported that quarterly operating losses had risen by $800mn to $1.5bn due to exploding content spending and marketing expenses. Days later, Chapek announced a cost-cutting plan.


Chapek was a gifted rake-stepper. To paraphrase Twain, there may be a hundred other handier things to step on, but that wouldn't satisfy Chapek. Chapek had to turn out and find a rake; and if he couldn't do it, go and borrow one.

I've queued up the part where Bob Chipman explains just how badly Chapek stepped on a political landmine that almost every other CEO would have stepped over effortlessly.




Chapek's run was so bad it's considered the big black mark on Iger's career.






The saddest part is, as bad as Chapek's tenure was, he still ran the company better than the previous and current bosses at Warner Bros.
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Monday, November 21, 2022

Back on the Ithuvania beat -- "Hipster Eugenics"

 


 

 Just to review...

Sometimes, when I come across yet another bit of jaw-dropping flakiness from some tech-bubble billionaire, my thoughts turn to Ithuvania. What if this were an experiment? What if some well-funded research organization decided to see what would happen if it randomly selected individuals of average intelligence, handed them huge checks and told them they were super-geniuses?

I'm not saying that's what happened; I'm just saying the results would have been awfully damned similar.

In his review of the remake of Death Wish, Bob Chipman was talking about the premise of the new version when he stopped and looked around the said, "Y'know, I don't hear anything, but my dog is going nuts."

 If you listen to this article by Julia Black, I'm pretty sure you'll get the same reaction. [emphasis and commentary added]

Malcolm, 36, and his wife, Simone, 35, are "pronatalists," part of a quiet but growing movement taking hold in wealthy tech and venture-capitalist circles. People like the Collinses fear that falling birth rates in certain developed countries like the United States and most of Europe will lead to the extinction of cultures, the breakdown of economies, and, ultimately, the collapse of civilization. [As has been pointed out numerous times (including this post by Joseph), these nations maintain a growing population though immigration which suggests that these particular pro-natalists have less of an issue with birth rates and more of an issue with which people are being born -- MP] It's a theory that Elon Musk has championed on his Twitter feed, that Ross Douthat has defended in The New York Times' opinion pages, and that Joe Rogan and the billionaire venture capitalist Marc Andreessen [the honorary dean of Ithuvania -- MP] bantered about on "The Joe Rogan Experience." It's also, alarmingly, been used by some to justify white supremacy around the world, from the tiki-torch-carrying marchers in Charlottesville, Virginia, chanting "You will not replace us" to the mosque shooter in Christchurch, New Zealand, who opened his 2019 manifesto: "It's the birthrates. It's the birthrates. It's the birthrates."

Google searches for "population collapse" spiked this summer, after Musk continued to raise the issue in response to Insider's report that he'd fathered twins with one of his employees. According to the United Nations, more than a quarter of the world's countries now have pronatalist policies, including infertility-treatment benefits and "baby bonus" cash incentives. Meanwhile, a spate of new assisted reproductive technology startups are attracting big-name investors such as Peter Thiel and Steve Jurvetson [Another charmer -- MP], fueling a global fertility-services market that Research and Markets projects will reach $78.2 billion by 2025.

...

Together [the Collinses] write books and work in the VC and private-equity worlds. Simone has previously served as managing director for Dialog, the secretive retreat cofounded by Thiel. While they relate to the anti-institutional wing of the Republican Party, they're wary of affiliating with what they called the "crazy conservatives."  Above all, they are focused on branding pronatalism as hip, socially acceptable, and welcoming [It's the 'welcoming' that makes it truly special -- MP]— especially to certain people. Last year, they cofounded the nonprofit initiative Pronatalist.org.

...

"We're frustrated that one of the inherent points of this culture is that people are super private within it," Simone said. They not only hope that their transparency will encourage other members of the upper class to have more children; they want to build a culture and economy around the high-birth-rate lifestyle.

The payoff won't be immediate, Simone said, but she believes if that small circle puts the right plans into place, their successors will "become the new dominant leading classes in the world." [Boy, that has a familiar ring to it -- MP]

...

It makes sense considering that Musk, who has fathered 10 known children with three women, is the tech world's highest-profile pronatalist, albeit unofficially. He has been open about his obsession with Genghis Khan, the 13th-century Mongol ruler whose DNA can still be traced to a significant portion of the human population. One person who has worked directly with Musk and who spoke on the condition of anonymity for this article recalled Musk expressing his interest as early as 2005 in "populating the world with his offspring."

...

These worries tend to focus on one class of people in particular, which pronatalists use various euphemisms to express. In August, Elon's father, Errol Musk, told me that he was worried about low birth rates in what he called "productive nations." The Collinses call it "cosmopolitan society." Elon Musk himself has tweeted about the movie "Idiocracy," in which the intelligent elite stop procreating, allowing the unintelligent to populate the earth.

...

The Collinses themselves have been called "hipster eugenicists" online, something Simone called "amazing" when I brought it to her attention.

Malcolm's "going to want to make business cards that say 'Simone and Malcolm Collins: Hipster Eugenicists," she said with a laugh.

 

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Sunday, November 20, 2022

Repost: We're about to revist that first paragraph in a big way

 

Monday, September 12, 2022

"Russia’s Military, Once Creaky, Is Modern and Lethal"

2022 has been, so far, a remarkably bad year for expert opinion. We've been dabbling in press criticism now for more than a dozen years and I can't think of a time when the anointed experts of the mainstream media been more wrong on more important questions than they have been over the past 9 months. The  conventional wisdom has been comically off on the reaction to Dobbs and the January 6 hearings, the viability of prominent candidates, the GOP "moving on" from Trump, the importance of Social Security and Medicare as an electoral issue, and, of course, the war in Ukraine.

If recent trends continue (always a big if), we can expect to see a lot of revisionism from major pundits and publications. They will shove as much as they can down the memory hole. Where that fails, they will either dredge up some ass-covering quote from paragraph twenty-three and pretend that was the main thrust of their position or they will claim that "It wasn't just us. Everybody got it wrong."

 That last bit of retconning distorts what really happened in two ways. It ignores both the people who actually did get it right and the distinction between slightly wrong and totally wrong. If you two forecasts, one predicting warm and sunny with 0% chance of precipitation and the other warning of moderate to heavy rain, and you get a torrential downpour, both were wrong, but the warm-and-sunny guy doesn't get to use that as a defense.

 The post-2016 revisionist push, "everybody got it wrong" became the go-to line, probably because the screw-up was too big to downplay or deny. Michael Moore doesn't figure into the conversation and Nate Silver's 30% chance of a Trump is grouped with all the single digit predictions.

Here are two takes on the Russian military written during the build-up to the war. The first is from the NYT, as always, the official spokesman for conventional wisdom.


From Russia’s Military, Once Creaky, Is Modern and Lethal

 By Anton Troianovski, Michael Schwirtz and Andrew E. Kramer

Jan. 27, 2022

Two decades later, it is a far different fighting force that has massed near the border with Ukraine. Under Mr. Putin’s leadership, it has been overhauled into a modern sophisticated army, able to deploy quickly and with lethal effect in conventional conflicts, military analysts said. It features precision-guided weaponry, a newly streamlined command structure and well-fed and professional soldiers. And they still have the nuclear weapons.

The modernized military has emerged as a key tool of Mr. Putin’s foreign policy: capturing Crimea, intervening in Syria, keeping the peace between Armenia and Azerbaijan and, just this month, propping up a Russia-friendly leader in Kazakhstan. Now it is in the middle of its most ambitious — and most ominous — operation yet: using threats and potentially, many fear, force, to bring Ukraine back into Moscow’s sphere of influence.

“The mobility of the military, its preparedness and its equipment are what allow Russia to pressure Ukraine and to pressure the West,” said Pavel Luzin, a Russian security analyst. “Nuclear weapons are not enough.”

Without firing a shot, Mr. Putin has forced the Biden administration to shelve other foreign policy priorities and contend with Kremlin grievances the White House has long dismissed — in particular reversing Ukraine’s Westward lean in the post-Soviet period.

...

What is new is not just Russia’s upgraded equipment, but the evolving theory of how the Kremlin uses it. The military has honed an approach that Dmitry Adamsky, a scholar of international security at Reichman University in Israel, calls “cross-domain coercion” — blending the real or threatened use of force with diplomacy, cyberattacks and propaganda to achieve political aims.

That blended strategy is playing out in the current crisis around Ukraine. Russia is pushing for immediate wide-ranging concessions from the West. Russian troop movements into allied Belarus put a potential invasion force within 100 miles of Kyiv, the Ukrainian capital. Russian state media is warning that Ukrainian forces are the ones preparing acts of aggression.


Compared to this from 

Assessing the Military Strength of Russia and Ukraine
Russia may not the hold the military advantage media reports indicate.
Giselle Donnelly
Feb 7


There has also been a profusion of articles summarizing Russian military modernization and reforms since the end of the Cold War and highlighting Russian successes in Syria and elsewhere, including Ukraine in 2014. “Russia’s Military, Once Creaky, Is Modern and Lethal,” headlines the New York Times. Under “Putin’s leadership,” the paper reports, the Russian military “has been overhauled into a modern sophisticated army, able to deploy quickly and with lethal effect in conventional conflicts. … It features precision-guided weaponry, a newly streamlined command structure and well-fed and professional soldiers.”

This is true, but isn’t the whole story. 

...

But just as in the United States, the logic of defense reductions is inescapable; the priority on “strategic” systems has crowded out investments in other elements of military modernization. Thus, while some elements of Russia’s conventional forces are indeed, as the New York Times puts it, “modern and lethal,” it is far from clear how far and wide the Russian general-purpose force modernization and organizational reforms has progressed. A review of post-Cold War performance reveals a mixed record.

...

In sum, the famed Russian willingness to suffer, perhaps Moscow’s greatest asset in World War II, has become a grave strategic liability. This, in conjunction with a need to preserve the limited quantity of his well-trained and well-armed conventional forces, has profoundly shaped Putin’s military moves for the past two decades. It also explains why “gray-zone” warfare—the use of unconventional tactics from cyber attacks to local proxies and influence operations—figures prominently in Russian strategy. Putin may be a wily card player, but he has some weak cards.

He has played these pretty close to the vest in Georgia in 2008, in Crimea and the Donbass in 2014 and since, in Syria the following year, in Nagorno-Karabakh in 2020 and lately in Belarus and Kazakhstan. Further, this is a substantial and growing list of conflicts—all of them limited but none of them decisively resolved or allowing for the easy shifting of forces and resources. And none of them is remotely of the same scale as the full-blown invasion of Ukraine he now threatens. For all of Putin’s provocations, he has acted like a man unsure of his own strength, more concerned with maintaining a potential “threat-in-being” than in showing off an undoubted ability to “shock and awe,” Desert Storm-style.

 

You can argue that no one realized how "creaky" the Russian military actually had become, it's important to distinguish between analysts who at least asked some of the right questions and those who simply followed the standard narrative.

 

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Friday, November 18, 2022

"If this is the last thing everyone sees on Twitter then I can absolutely live with that…"

Twitter (in perhaps the most Twitter thing ever) may be giving its own eulogy. The big topic on the platform tonight is whether it will be there in the morning. Things are speeding up. A couple of days ago. people were debating whether it would last a year; now the discussion is over whether it will last the weekend.

Like Rasputin, Twitter has recently suffered numerous seemingly mortal blows but the proximate cause was the wave of resignations. You probably recall Musk firing half the company, including quite a few people who turned out to be mission critical. He then fired anyone who criticized him either publicly or internally. 

Between the insult and the injury (both to them and to the company they'd built), pretty much everyone who actually made Twitter run by this point hated their new boss. This was the moment Elon chose to play the tough guy, telling his employees they'd have to put in insane hours with no remote work. Then things got ugly.

Personally, I expect the company will limp on for a while, but between the crippling debt and the loss of ad revenue, it's a dead man walking (if the poison doesn't get you the bullets will).



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Thursday, November 17, 2022

Five years ago at the blog -- I'd forgotten how non-annoying Pinker used to be

 Wednesday, November 22, 2017

Igon values, superstar coin flippers, and the Gladwell problem

Malcolm Gladwell has started coming up in quite a few major threads and larger pieces, so I decided I needed to get up to speed on some of the controversies involving the author. Some of the more substantial have centered around what Steven Pinker has called the Igon value problem

From Pinker's review of "What the Dog Saw"
An eclectic essayist is necessarily a dilettante, which is not in itself a bad thing. But Gladwell frequently holds forth about statistics and psychology, and his lack of technical grounding in these subjects can be jarring. He provides misleading definitions of “homology,” “sagittal plane” and “power law” and quotes an expert speaking about an “igon value” (that’s eigenvalue, a basic concept in linear algebra). In the spirit of Gladwell, who likes to give portentous names to his aperçus, I will call this the Igon Value Problem: when a writer’s education on a topic consists in interviewing an expert, he is apt to offer generalizations that are banal, obtuse or flat wrong.


Gladwell got the best of the follow up exchange, dismissing “igon value” as a spelling error while getting Pinker sucked into a bunch of secondary or even tertiary arguments. (One of the best indicators of intelligence is the ability to avoid discussions about the heritability of intelligence.)

The spelling error defense is technically correct but it misrepresents the main point of the criticism. First off, on a really basic level, this indicates poor fact checking on the part of Mr. Gladwell and the New Yorker. Even working under the relatively low standards of the blogosphere, I always try to Google unfamiliar phrases before quoting them. You'd think that the editors of America's most distinguished magazine would do at least that much.

More importantly, spelling errors fall in two basic categories. The first does not tell us anything substanitive about the writer. Given the ghoti insanity of the English language, being a bad speller does not necessarily imply a weak vocabulary or poor mastery of the language (put another way, not knowing whether it's double C or double S in "necessarily"does not necessarily suggest that you don't know what "necessarily" means). There are, however, cases (particularly involving transcription) where spelling errors can indicate that the writer is unfamiliar with the words in question. That appears to be the case here.

Pinker's central criticism largely boils down to phonetic reporting. Gladwell often goes into stories with a weak grasp of the field in question, as a result he frequently makes serious mistakes, constantly misses important subtleties, and is almost completely dependent on his subjects for understanding and context. Add to this poor fact checking and a disturbing nonchalance about getting the story right, and things can get ugly quickly.

Somewhat ironically, Gladwell hit back at Pinker for employing one of the same techniques which Gladwell is so proud of, picking a detail that told a good story and memorably illustrated a larger idea. The Igon Value Problem worked beautifully on those terms but it was far from the most serious or conclusive example available, even if we limit ourselves to the single article in question, "Blowing Up."

For example, the piece is very much invested in the idea of Taleb as Wall Street revolutionary. We could quibble about just how radical the Black Swan ideas and strategies are, but it is an entirely defensible interpretation. Unfortunately, Gladwell doesn't really understand which ideas are debatably new and which are familiar to anyone in finance. Here's an excerpt (starting and ending mid-paragraph):

There was just one problem, however, and it is the key to understanding the strange path that Nassim Taleb has chosen, and the position he now holds as Wall Street's principal dissident. Despite his envy and admiration, he did not want to be Victor Niederhoffer -- not then, not now, and not even for a moment in between. For when he looked around him, at the books and the tennis court and the folk art on the walls -- when he contemplated the countless millions that Niederhoffer had made over the years -- he could not escape the thought that it might all have been the result of sheer, dumb luck.

Taleb knew how heretical that thought was. Wall Street was dedicated to the principle that when it came to playing the markets there was such a thing as expertise, that skill and insight mattered in investing just as skill and insight mattered in surgery and golf and flying fighter jets.

...

For Taleb, then, the question why someone was a success in the financial marketplace was vexing. Taleb could do the arithmetic in his head. Suppose that there were ten thousand investment managers out there, which is not an outlandish number, and that every year half of them, entirely by chance, made money and half of them, entirely by chance, lost money. And suppose that every year the losers were tossed out, and the game replayed with those who remained. At the end of five years, there would be three hundred and thirteen people who had made money in every one of those years, and after ten years there would be nine people who had made money every single year in a row, all out of pure luck.

But of course, Taleb didn't have to "do the arithmetic in his head" because, like virtually everyone else on Wall Street, he had probably read almost the same analogy in a famous passage from A Random Walk Down Wall Street by Burton Malkiel [transcribed via Dragon so beware of homonyms]:

Perhaps the laws of chance should be illustrated. Let's engage in a coin flipping contest. Those who can consistently flip heads will be declared winners. The contest begins and 1,000 contestants flip coins. Just as would be expected by chance, 500 of them flip heads and these winners are allowed to advance to the second stage of the contest and flip again. As might be expected, 250 flip heads. Operating under the laws of chance, there will be 125 winners in the third round, the three in the fourth, 31 in the fifth, 16 in the sixth, and 8 in the seventh.

By this time, crowds start to gather to witness the surprising ability of these expert coin-flippers. The winners are overwhelmed with adulation. They are celebrated as geniuses in the art of coin-flipping, their biographies are written, and people urgently seek their advice. After all, there were 1000 contestants and only eight could consistently flip heads. The game continues and some contestants eventually flip heads nine and ten times in a row. [* If we had let the losers continue to play (as mutual fund managers do, even after a bad year), we would have found several more contestants who flipped eight or nine ads out of 10 and were therefore regarded as expert coin-flippers.] The point of this analogy is not to indicate that investment-fund managers can or should make their decisions by flipping coins, but that the laws of chance do operate and that they can explain some amazing success stories.


(I love that second paragraph. Pretty much any time I flip past CNBC it comes flooding back to mind.)

Malkiel published this book in 1973 and though it more than ruffled a few feathers, it quickly became one of the seminal books on investing. Malcolm Gladwell's New Yorker piece came out 25 years later.

None of this is meant to imply any kind of deliberate plagiarism. Quite the opposite. I very much doubt that Gladwell realized he was paraphrasing a well-known passage. What I strongly suspect happened was that Taleb cited this in an interview as a standard example that everyone would be familiar with, sort of like describing a situation as a "frog in boiling water."

Gladwell's unacknowledged paraphrase is yet another indication that he didn't understand the strange role that economic theory and particularly market efficiency (in this case the semi-strong variety) plays on Wall Street, a role that was central to his narrative. This would be bad enough if he was just shooting for a straightforward profile, but Gladwell insists on playing the deep thinker, making pseudo-profound points, even closing with a grand sweeping moral about human nobility:

“That is the lesson of Taleb and Niederhoffer, and also the lesson of our volatile times. There is more courage and heroism in defying the human impulse, in taking the purposeful and painful steps to prepare for the unimaginable.”

Gladwell loves to tell what Christopher Chabris has termed "just-so stories," cute little fables counterintuitive and surprising enough to catch the eye but neat and simple enough to go down easy. Paradoxically, pulling off that sort of simplicity requires that the writer have a deep and subtle understanding of his or her subject. Simplifying a subject you don't understand never goes well.
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Wednesday, November 16, 2022

The NYT's election face plant reflects a long standing problem

Michael Cieply writing in 2016. [Emphasis added.]

Having left the Times on July 25, after almost 12 years as an editor and correspondent, I missed the main heat of the presidential campaign; so I can’t add a word to those self-assessments of the recent political coverage. But these recent mornings-after leave me with some hard-earned thoughts about the Times’ drift from its moorings in the nation at-large.

For starters, it’s important to accept that the New York Times has always — or at least for many decades — been a far more editor-driven, and self-conscious, publication than many of those with which it competes. Historically, the Los Angeles Times, where I worked twice, for instance, was a reporter-driven, bottom-up newspaper. Most editors wanted to know, every day, before the first morning meeting: “What are you hearing? What have you got?”

It was a shock on arriving at the New York Times in 2004, as the paper’s movie editor, to realize that its editorial dynamic was essentially the reverse. By and large, talented reporters scrambled to match stories with what internally was often called “the narrative.” We were occasionally asked to map a narrative for our various beats a year in advance, square the plan with editors, then generate stories that fit the pre-designated line.

Reality usually had a way of intervening. But I knew one senior reporter who would play solitaire on his computer in the mornings, waiting for his editors to come through with marching orders. Once, in the Los Angeles bureau, I listened to a visiting National staff reporter tell a contact, more or less: “My editor needs someone to say such-and-such, could you say that?”

The bigger shock came on being told, at least twice, by Times editors who were describing the paper’s daily Page One meeting: “We set the agenda for the country in that room.” 


Not only is the New York Times far more committed to its narratives than are its peers, the narratives it embraces are almost uniformly the worst possible kind: simplistic; hackneyed; and static. Truths are obvious. Characters tend to fall neatly into the four basic categories: hero, victim, villain, fool. A story of scientific standards and incentives becomes a tired Scarlet Pimpernel tale of revolutionary zealots persecuting a young woman who overcame great hardship to learn how to dance again. A serious debate over the best educational approaches degenerates into a black hat / white hat fight between those who care about children and those who simply want to pursue their own selfish ends. The enormously complex problem of housing is reduced to a handful of trivial old money versus new money fights about tiny pieces of land.

Add to this arrogance, provincialism, enormous resistance to criticism, and a tendency toward the self-serving, and you get a dangerously toxic mix.

For the press in general, and the New York Times in particular, there is no narrative as safe and as reassuring as Dems in disarray.The basic plot had dust on the script back when Shirley Temple was the biggest thing in Hollywood, it plays to comfortable notions and stereotypes, and best of all, it hits that sweet spot for nominally center-left publications terrified of accusations of liberal bias. (Something that conservatives have found extraordinarily easy to take advantage of.) It appeases critics from the right while framing the story as concerned rather than dismissive.

"Dems in disarray" and the New York Times' other narratives and literary tics have become so predictable that the satirical New York Times Pitchbot's parody headlines often show up in the paper a few days later almost verbatim.


Given the paper's self-importance, the satire is deeply amusing, but given its actual importance, this kind of lazy writing and even lazier journalism isn't acceptable in the paper of record.


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Tuesday, November 15, 2022

Tuesday Schadenfreude Tweets -- an embarrassment of embarrassments

I love this quote.

We'll make this first part fairly brief, partly because Joseph has already given us a good overview of last week in crypto and partly because Matt Levine (in his essential newsletter) warns us we don't want to spend too much time staring into this abyss.

If a troubled company has a few days to beg potential investors for a bailout before it files for bankruptcy, and it sends those investors its balance sheet so they can consider investing, and they all pass, and then the company files for bankruptcy, of course the balance sheet was bad. That is not a state of affairs that is consistent with a pristine fortress balance sheet.
But there is a range of possible badness, even in bankruptcy, and the balance sheet that Sam Bankman-Fried’s failed crypto exchange FTX.com sent to potential investors last week before filing for bankruptcy on Friday is very bad. It’s an Excel file full of the howling of ghosts and the shrieking of tortured souls. If you look too long at that spreadsheet, you will go insane.






 

Now moving on to Twitter. (You'd think that Sam Bankman-Fried would have had a lock on most embarrassing business news, but no.)




 

This last one applies to all of Musk's businesses.




Of all of the tweets from fake accounts, this shout out to the age of banana republics is my favorite.




You know what this story needs? A TED connection.

And some questionable ethics.

Interesting thread on the wave of non-parody frauds hitting Twitter.


 

General Muskiness.



Joseph already mentioned this but it bears repeating.

 

 

Musk was betting heavily on the red wave, which segues neatly into our next topic.


And saving the best schadenfreude for last...












And finally, a break from the snark.

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Monday, November 14, 2022

Follow-up to Friday's post on FTX

This is Joseph.

Perhaps it was a mistake to post on a fast-changing event but the FTX saga definitely has taken some rather unexpected twists:


So it really is looking like this company was a straight up Ponzi scheme. Which probably shouldn't be a surprise given the interview with Sam Bankman-Fried where Matt Levine characterized his business model as:
I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.
So perhaps there we warning signs about cryptocurrency as an investment? Insofar as a currency is a financial instrument, there is rarely a more dangerous market than currency speculation. Insofar as it is an investment, the fundamental value of zero really needs to be engaged more. I am hoping Mark comes back to this as cryptocurrency is really his wheelhouse and he has been proven right. 

What I found more fascinating is how an educated person could have ended up describing (and agreeing they were describing) a Ponzi scheme as their business model. Then I read this:



Then it made sense. If the world is about six-paragraph blog posts (not that I, clearly, object to the medium) then it is hard to get depth on any subject. When you are running a financial services company based on a physics undergraduate education, it is easy to become arrogant. 

Speaking of arrogant, Twitter laid off too many employees and now needs to rehire some because they are suddenly short of critical skills. One point is that this is not a promising sign of a solid business plan. But there is a second point about how it is revealing about other cultural cracks. A twitter manager posted this on his internal slack:



William Pietri is right about the immediate diagnosis:


But I think that there is another level to all of this change. Part of what made the "tech industry" so appealing was a knowledge based approach that was intended to change the world. Now money was a big part too, people need to feed themselves. But there are lots of ways to make money. One thing that tech really had going for it was the ability to intrinsically motivate people, via humane treatment and a sense of mission (Tesla saves the environment, crypto is a new future free of government meddling, Uber will rethink transportation). But now that the big items are looking hollow, how is this work environment any better than a blue collar labor one? This is precisely the sort of managerial arrogance that poisoned industry in the past. It is a shame to see it emerging in tech, as well. 

In any case, these may prove to be rather extreme cases, especially Twitter as it was acquired with a leveraged buy-out and many viable companies cannot survive a massive debt load. But it is a warning sign for ungrounded optimism and we need to remember that fast-growth can cover a multitude of sins (think of railways-- a clearly historically important business but there was definitely a lot of shaking out). 

How this all ends remains to be seen. 
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Friday, November 11, 2022

The day the bills came due

This is Joseph.

Over the years, I have followed how Mark follows the hype that many industries engage in, with ideas like the Ponzi threshold where over-valued companies end up making aggressive decisions to try and catch up with their value.

Consider the case of Sam Bankman-Fried (multi-billionaire at 30) and his new thread:

which ends with:

The comment "FTX US users are fine" looks very scary to put out in the midst of a liquidity crisis and reports of founder bankruptcy. Would you really want to have investors make decisions based on this disclosure in the midst of a rapidly changing market situation? It's also challenging when tweets only 2 days ago were assuring people that everything is fine. 

 Still, real people are going to be hurt:



The teachers will be fine but it is warning about how unregulated banking can play havoc with people's assets and retirement funds. There is a reason that regulations exist, and it is neither that the government hates bankers becoming rich (all evidence is to the contrary) or that they want control (Libertarians to the contrary). But that the blow back in a major crash is very painful. 

That said, there is an issue with crytocurrency having no underlying assets and the general issue of there being a reason that there are banking regulations. So let us consider an overvalued company, because of a very high acquisition cost. 


It is not the best sign in the world that the CISO of Twitter has left in the first two weeks after the deal was concluded. Maybe not decisive, perhaps they have a different vision for the company, but not the best sign. But then you have things like this:
I have heard Alex Spiro (current head of Legal) say that Elon is willing to take on a huge amount of risk in relation to this company and its users, because “Elon puts rockets into space, he’s not afraid of the FTC.”
The best reply was from Mike Dunford:
As legal arguments go, "Elon puts rockets into space," is creative. Novel. Even unique.

For the non-lawyers: that's not a complement.
To be fair, we are in rather unique legal territory, as Mr Dunford later admitted, so perhaps a creative legal argument is needed because that is all that is left? 

Furthermore, there is a crackdown on working from home:
Starting tomorrow (Thursday), everyone is required to be in the office for a minimum of 40 hours per week. Obviously, if you are physically unable to travel to an office or have a critical personal obligation, then your absence is understandable.
Now I am neutral on working from home. Sometimes it is a good thing because it can enhance productivity and sometimes it erodes team building or, under weak management, can be used for grift. But forcing people into the office rarely fixes a major problem and doing a major change in terms of employment on short notice is the sort of thing that induces morale problems when productivity is most important.  After all, in the same letter Elon Musk notes:
Frankly, the economic picture ahead is dire, especially for a company like ours that is so dependent on advertising in a challenging economic climate. Moreover, 70% of our advertising is brand, rather than specific performance, which makes us doubly vulnerable!

That is why the priority over the past ten days has been to develop and launch Twitter Blue Verified subscriptions (huge props to the team!). Without significant subscription revenue, there is a good chance Twitter will not survive the upcoming economic downturn. We need roughly half of our revenue to be subscription.
Yes, that is correct -- Twitter is redesigning its business model on short notice to change (almost completely) the revenue stream for the company. And the CISO just left. 

Now, Musk may be an engineering genius [though there are other opinions -- MP], but this is no proof of being a successful businessman and the company that had his reputation is named after an authentic genius who died bankrupt. It is clear that Twitter is taking on non-trivial amounts of regulatory risk and needs to get a lot of subscribers fast (both at the same time). I am curious as to Mark's opinion on the likely outcome, as he is the expert in this type of corporate behavior, but it seems high risk to me. 


So hopefully these companies managed to avoid the Ponzi threshold, but I am dubious and I feel sad for their clients and the people who enjoyed their services. 
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Thursday, November 10, 2022

MoviePass was the platonic ideal of a 21st century start-up

From Matt Levine's newsletter (No, I don't have a link. It's a free newsletter. Why haven't you signed up yet?)

Meanwhile they were flailing around in private trying to figure out how they could make money. From the indictment:

On or about October 8, 2017, LOWE wrote FARNSWORTH and a team of MoviePass executives to ask them to brainstorm “ideas” about how to generate revenue: “So now that we have gotten into month 2 of our new pricing model we will need to create a plan on how we get from the usage level now to the desired profitable model in the future.”

From the SEC complaint:

In March 2018, MoviePass hired a Chief Product Officer, whose main focus was to identify a break even business model and then explore how MoviePass could generate additional revenues outside of subscriptions. The Chief Product Officer quit less than six months later, after realizing that MoviePass’s business model would not work. The Chief Product Officer communicated his views to Lowe.

 Keep in mind the new pricing model was basically selling dollar bills for 45 cents (specifically, on average "each customer paid MoviePass $9.95 per month, but cost MoviePass $22 per month in tickets."). You might think that the brainstorming stage might come before betting hundreds of millions on a business plan that sounded like an SNL parody of a bad start-up.

But while MoviePass is an extreme case, it is not extreme in an unrepresentative way. It takes the asset-bubble mindset of the teens to its logical conclusion. What set the company apart was less the absurdity and more the lack of pretense. Unicorns like Uber/Lyft and WeWork at least pretended to have thought about a path to profitability. All of their plans were essentially derived from a South Park episode. MoviePass just didn't bother to change the font.



 

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Wednesday, November 9, 2022

“Why didn’t the Roman Empire have an industrial revolution?” [and why Britain did]

 

 For my money, Bret Devereaux might be the most interesting long form blogger working today. His writing is sharp, his arguments are well reasoned and placed into context, and everything is supported by a carefully constructed framework of evidence.

This post starts with the kind of question that too often takes some minor historical fact like Heron inventing a (thoroughly impractical) steam engine and quickly devolves into a bad Turtledove imitation. Instead of going down that tiresome route, Devereaux explores the economic, technological, and social conditions necessary for an industrial revolution and shows how late eighteenth century Britain was both the right time and the right place. 

And now, at last, the pieces in place the revolution in production arrives. There a machine (the spinning jenny) which needs more power in rotational motion and already encourages the machines to be centralized into a single location; the design is such that in theory one could put an infinite number of spools in a line if you had sufficient rotational energy to spin them all. Realizing this, textile manufacturers (we’re talking about factory owners, at this point) first use watermills, but there are only so many places in Great Britain suitable for a watermill and a windmill won’t do – the power needs to be steady and regular, things which the wind is not. But the developments of increasingly efficient steam engines used in the coal mines now collide with the developments in textiles: a sophisticated steam engine like the Watt engine could provide steady, smooth rotational motion in arbitrary, effectively infinite amounts (just keep adding engines!) to run an equally arbitrary, effectively infinite amount of mechanical spinning jennies, managed now by a workforce a fraction of a size of what would have once been necessary.

 ...

But the technology could not jump straight to railroads and steam ships because the first steam engines were nowhere near that powerful or efficient: creating steam engines that could drive trains and ships (and thus could move themselves) requires decades of development where existing technology and economic needs created very valuable niches for the technology at each stage. It is particularly remarkable here how much of these conditions are unique to Britain: it has to be coal, coal has to have massive economic demand (to create the demand for pumping water out of coal mines) and then there needs to be massive demand for spinning (so you need a huge textile export industry fueled both by domestic wool production and the cotton spoils of empire) and a device to manage the conversion of rotational energy into spun thread. I’ve left this bit out for space, but you also need a major incentive for the design of pressure-cylinders (which, in the event, was the demand for better siege cannon) because of how that dovetails with developing better cylinders for steam engines.


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Tuesday, November 8, 2022

When the bomb under the chair is a bomb cyclone [Okay, technically not a bomb cyclone but we all cheat a little in search of the catchy title]

Just to review, we've previously used the metaphor of bombs under everyone's chairs to describe the large number of unprecedented, potentially cataclysmic, and entirely unpredictable events that could very well shape this and the next election. Some of the bombs we've mentioned are Dobbs, the rise of American fascism, election day voter intimidation and violence. Here's one that wasn't on our radar ( pardon the pun).

Of course, we've had major storms on Election Day before, but I don't believe they've ever had the partisan implications they do now. This is, as are so many political developments in 2022, the direct result of conservative disinformation, particularly the 2000 mules conspiracy theory, which is now morphing into feral disinformation. It is all but impossible to predict the consequences of having the majority of one political party convinced that the last election was stolen.


To be clear, I'm not saying that weather conditions out West (we're bracing ourselves for flash floods an mudslides here in California) will have a noticeable effect on turnout. If it does, we don't know if it will disproportionately affect one party. That's the point of this whole thread: we don't know.

To make matters worse, in some cases, we may be talking about real bombs.



Between these unpredictable, potentially big factors, the declining quality of polls, the huge range-of-observed-data problem with likely voter models, and the number of conflicting indicators, the only rational thing to do is ignore the horse race. We need to focus on solving crises, not on unreliable reports of how the battle is going.

 

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