What We’re Reading (Week Ending 06 February 2022) - 06 Feb 2022
Reading helps us learn about the world and it is a really important aspect of investing. The legendary Charlie Munger even goes so far as to say that “I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading.” We (the co-founders of Compounder Fund) read widely across a range of topics, including investing, business, technology, and the world in general. We want to regularly share the best articles we’ve come across recently. Here they are (for the week ending 06 February 2022):
1. Oral History Interview: Morris Chang – SEMI, The Computer History Museum and Morris Chang
Q: The idea really wasn’t very well received in the industry at that time.
MC: No. It was very poorly received. Well, people just dismissed it, you know, “What the hell is Taiwan doing? What the hell is Morris Chang doing?” They really didn’t think that it was going to go anywhere. There was no market because there was very little fabless industry, almost none. No fabless industry. So who are you going to sell these wafers to? Who are you going to manufacture the wafers for? Of course, the obvious answer was the companies that already existed at that time, the Intels, and TIs, Motorolas, and so on. Now, those companies knew that they would let you manufacture their wafers only when they didn’t have the capacity, or when they didn’t want to manufacture the stuff themselves anymore. Now, when they didn’t have the capacity, and asked you to do the manufacturing, then as soon as they got the capacity, they would stop orders to you, so it couldn’t be a stable market. And when they didn’t want to make the wafers anymore, well, the chance was that it was losing money for them. The product was losing money for them. And so what do you want to do? Do you want to take over the loss, you know? And so that wouldn’t be a very good market either.
So the conclusion at that time, the conventional conclusion was that there was no market. Maybe this idea, this pure-play foundry idea, exploited the only strength you have, which is manufacturing, but there’s no market for it. That’s why it was so poorly thought of. What very few people saw, and I can’t tell you that I saw the rise of the fabless industry, I only hoped for it. But I probably had better reasons to hope for it than people at Intel, and TI, and Motorola, etc because I was now standing outside. When I was at TI and General Instrument, I saw a lot of IC designers wanting to leave and set up their own business, but the only thing, or the biggest thing that stopped them from leaving those companies was that they couldn’t raise enough money to form their own company. Because at that time, it was thought that every company needed manufacturing, needed wafer manufacturing, and that was the most capital intensive part of a semiconductor company, of an IC company. And I saw all those people wanting to leave, but being stopped by the lack of ability to raise a lot of money to build a wafer fab. So I thought that maybe TSMC, a pure-play foundry, could remedy that. And as a result of us being able to remedy that then those designers would successfully form their own companies, and they will become our customers, and they will constitute a stable and growing market for us…
…Q: Was there ever a time when it looked like TSMC, or the dedicated foundry idea would not work?
MC: Oh, yeah, I mean the first few years were not easy, but look, the investors had already put in so much money, and we never had any thought of failing. And in fact, we only had two loss years in all our history. We had a loss year in 1987, the first year that we started, and we again had a loss year in 1990. I mean the first few years were pretty tough, but from ’91 on, we just grew without looking back. The year 2000, that was a tough year for a lot of people. Yes, it was a tough year for us too, but we were profitable, 2000, 2001. We have not lost any money, and we don’t intend to lose any money from 1991 on.
Q: In your view, why has the Taiwan foundry industry been successful?
MC: Well, when you say, “Why has our foundry industry been so successful?,” I have to change that. Actually as of two years ago, some analyst made a calculation…TSMC, up to that point, accumulatory, had made 110 percent of the total pure-play foundry industries’ profit. That means our profit exceeded all other people’s losses by 10 percent. Yes, I guess that’s what it meant. So when you say, “Why is the foundry industry so successful…,” maybe you should change your question to, “Why has TSMC been so successful?”
2. Bored Ape Yacht Club Artist Says Compensation ‘Definitely Not Ideal’ – Matthew Gault
The people behind the BAYC collection, Yuga Labs, have made millions. But someone had to design the now-iconic apes. Every grin and hat and disinterested eye was lovingly crafted by artists before it was fed into an algorithm. In a new interview at Rolling Stone, BAYC lead artist Seneca shared a conflicted experience working in the NFT space.
Seneca is an artist specializing in disturbing and dreamlike imagery. She was the lead designer of the BAYC collection and did many of the initial sketches. She didn’t draw every hat, shirt, and ape herself, but she’s responsible for much of the overall design. “Not a ton of people know that I did these drawings, which is terrible for an artist,” she told Rolling Stone.
Yuga Labs did pay Seneca for her work, and though she wouldn’t disclose the details of the transaction, she said it “was definitely not ideal.”
She’s still hyped on crypto, web3, and NFTs, but she said she learned some valuable lessons working on BAYC. She told Rolling Stone that artists should ask for royalties and understand NFTs and smart contracts before taking on a project like BAYC.
3. Gavin Baker – The Cyclone Under the Surface – Patrick O’Shaughnessy and Gavin Baker
[00:09:15] Patrick: If we had talked, I don’t know, 9, 10, 11 months ago, the setup arguably would not have been nearly as good. Who knows what we would have said then. Maybe we would have thought multiples would have just continued to expand. But today, undoubtedly, like you said, they’re at or below their 2018 levels. The businesses are better. So it stands to reason sort of that there’s more interesting opportunity set in those set in those three major sub-sectors of semis, software and internet. I want to come back to those in a minute. Before we do that, I’d love to level set with the things in the market or the economy or the world that you’re most carefully interested in and watching relative to the last time we talked, when obviously it was sort of all COVID. But the world has changed a lot since then. We’re sort of settled into COVID, inflation has become a dominant theme. What are the themes that, outside of just individual companies, have your interest most, that you think most matter for general market returns from this point forward?
[00:10:05] Gavin: I think for me, inflation is the only thing that matters. And I think there’s a lot of focus on the fed. To me, the fed is a little bit of a side show. I’ve lived through a lot of fed tightening cycles. There’s a lot of great work that’s been done on how equities do. Generally stocks are up, actually I think in every tightening cycle dating back something like 25 years, stocks are up 12 months after the first rate hike. By the way, the reason they’re up is they generally sell off into the first rate hike because the market is anticipatory. And everybody sees these studies, things happen faster, the market is becoming even more anticipatory over time. So I think the Fed is a little bit of a sideshow, from my perspective, and what’s different about this Fed tightening cycle is you just had the highest CPI print in 40 years. And I do think in terms of mistakes I made, I really under-reacted to Powell’s appointment. I’m not somebody who’s mindlessly bullish on growth. I’d say I was very cautious of high multiple growth stocks for probably the summer of 2020 to April, May of 2021. Wrote this big piece on Medium explaining why I was getting more positive. That was way too early. But a lot of those stocks, even back in May, their multiples that already corrected 50, 60%-plus. We digested a pretty big move in the 10 year. Powell was reappointed, clearly with a mandate to crush inflation. The market got that right. I mean, it was right away. The data Powell was appointed, that was a sea change in the market that has persisted through today. And I think just what’s different is that 7% CPI number. And if you think about what drives the market, just like stocks, it just comes down to earnings and multiples. And liquidity drives the multiples and GDP growth drives earnings growth.
The fed, because inflation is at 7%, I think that’s why this selloff has been so severe. Just because this is different than anything any professional, I mean, maybe there’s some people. I guess Warren Buffett was investing in 1982, okay. Maybe there are a couple of people who were professional investors in active investors in 1982, but not many. So as a bottoms-up investor, you do kind of have to be macro-aware. And I think there’s two parts to inflation. The first one is supply chain driven, the shortage of goods everybody’s read about. Ships stacked up the port, we can’t get enough semiconductors to make cars. I am so relaxed about that. It is very rare for me to have a view on something like that. I just think we now have hundreds of years of history and capitalism is amazing at solving problems. It is so good. And we have seen a massive supply response. This is a statistic, I actually just ran this this morning. Amazon has spent more money on capex, and this is just illustrative, it’s not a comment on Amazon. It’s a comment on the supply response. They have spent more money on capex in the last two years than they did in the preceding 20 years.
[00:13:06] Patrick: Insane.
[00:13:07] Gavin: Think about that. From 1999 to they spent 62 billion on capex. They’re going to spend 87 billion in 2020 and 2021.
[00:13:16] Patrick: That is crazy.
[00:13:18] Gavin: That’s unimaginable. And no, I did not go through and nerdily adjust every year for capitalized leases. And maybe it makes it more striking, maybe it makes it less striking, but either way it’s crazy. Taiwan City, their 2022 capex is going to be many multiples of 2018. 2021 and 2022, they’ll spend more than they did in the preceding five years. So there is a massive supply response coming. We know that the economy is slow. We know it from credit card data, retail sales, which a couple of reports here have 16% for the year. They’re flat in November, down two in December. And then the Atlanta Fed does this thing they called the GDP now. And that was ten in November, five in December. So the economy is slowing rapidly. So you’ve got this massive supply response, an economy rapidly slowing before the fed begins to take away the punch bowl. I think you’re about to have a truly massive shift in consumer spending away from goods towards services. If you trend out and look at real personal expenditures, goods spending is roughly 500 billion above the pre-COVID trend line. Services spending is 500 billion below the trend line. And that shift, Omicron is probably the end of COVID, to me as a factor for investing for daily life. So I do think the economy will finally normalize. So when you have this supply response, meaning a slowing economy and a shift away from goods towards services, then I just think all of that inflation goes away.
Goldman did this analysis. Auto is accounted for half of the overshoot in core inflation, used auto prices. They were kind of flat for forever and then they went up 50% in 18 months. All that goes away. Maybe it doesn’t, want to be appropriately humble, but I think highly likely that all that is going to go away. If it doesn’t go away, wow, okay, I’m going to be horribly, horribly wrong. And I do think this post-World War II period is an interesting analog for this. You had a 20% CPI basically, because there was huge boom, factories, really good at making takes and fighter jets and not good at making anything else. There was a supply response and CPI went right back down. And so I think for that component, that is for sure going to normalize. And I think the other thing is wage inflation. And this is something where there are things happening in the economy that have literally never happened before. Like the ratio, there’s more unemployed people looking for work than there are job openings. Now there’s more job openings than there are people looking for work. The ratio of job openings to unemployed hit an all time high. Something happened that’s never happened before. I think it’s important to think about it with an open mind and it’s like, okay, why has this happened?
Well point number one, we had massive stimulus since the New Deal. And on top of that, we had a debt jubilee. And I don’t think we really fully understand how powerful that debt jubilee was. We basically said, “You don’t have to pay rent.” Student loan forgiveness, eviction moratoriums, all this stuff. You had all of that. You had people, lot of people over the age of 62 left the workforce. And I think part of that is people probably took these voluntary buyouts that companies, I’m sure they wish they had not given in the spring of 2020, that I do think you have give people credit for being rational. I think the idea of getting COVID is much scarier if you’re over 60 than if you’re under 40. Sad to say I’m over 40. So you had a lot of people retire. And then I also think you had a lot of people who, because of remote learning, a lot of two income households went to one income households. All of that is normalizing. The debt jubilee is over, stimulus is fading, consumer savings are beginning to draw down. I do think after Omicron, kids are going to be able to sustainably go back to school. So a lot of that stuff is fading, but really, really who knows. And if wage inflation is here to stay, I think it means very bad things for the market. It’s just that simple. I think on balance, it’s probably not here to stay. These forces of globalization, they’re too powerful. I’m not sure that the idler movement is here to stay. It’s one thing to be an idler while you have a debt jubilee and, and a lot of savings. It’s another thing when you burn all of that down.
But I just think it’s important to be humble. Anytime you’re talking about forecasting the future, you want to be humble. People have been trying to do it for thousands of years unsuccessfully. And at the end of the day, that is what fundamentally investing is. You are forecasting the future. You have a differential opinion on the future, full stop. People don’t like to admit that, but that is what it is. As hard as that is to do for individual companies, it’s way harder to do for entire economy, which is the world’s most complex chaotic system, high sensitivity to initial conditions, unpredictable interactions. Everything I’m saying, I want to caveat with that. I don’t know if I’ve given you my two examples before, Patrick, and feel free to stop me if I have, but I always think about the Federal Reserve, they employ more PhD economists than anyone. They have more information on the economy than anyone, like way more information than anyone. They have vast amounts of computing power, and they have no ability to forecast the economy out more than six months. And so A, I’m way less smart. B, I have way less information, certainly have less computing power. So there was a letter written, an op-ed written in the Wall Street Journal somewhere in between 2010 and 12. And I think a majority of the world’s PhD economists signed it. Every famous macro-investor you can think of signed it, but it basically said, “Hey Ben Bernanke, you have no idea what you’re doing. This quantitative easing is going to cause massive inflation. It’s going to ruin America. You’re going to bring about hyperinflation. It’s going to be the ruin of America.” They were dead wrong, horribly wrong…
…[00:25:39] Patrick: I’d love to dive in a little bit, just underneath that big trend, you mentioned the three sub-sectors of semis, software, internet. Maybe we could also talk about a fourth category, which is the big five or the big 10 technology companies that are conglomerates at this point. Maybe we’ll start with semis. I’ve talked to you about this in the past, I’m just totally fascinated by the semiconductor industry. I know this is where you cut your teeth a lot, followed it since its beginning and since the start of your career. A lot of people had never heard of Taiwan Semiconductor two years ago. And I think a lot more people have now, for a variety of reasons, not just the shortages and the importance of supply chain, but also the geopolitical stuff. Walk us through your take on semis today and what’s evolved and what matters in that subsector in tech, since it’s such a key one?
[00:26:21] Gavin: Let’s step back and look at the last 15 years of semis. The industry has completely consolidated to where you almost have these monopolies – monopolies or duopolies in every subsector of semis. You either have a monopoly, duopoly, or in the worst case, an oligopoly of three. And in even their suppliers to capital equipment companies, they’re all either monopolies to duopolies. So the industry has massively consolidated over the last 15 to 20 years in a way that maybe should have never been allowed to happen. Although the fact is that a lot of these markets, for a lot of reasons, mostly because the network effects around software code and then economies of scale, they do tend toward being a monopoly, a monopoly or duopoly. So in basebands, there’s a duopoly. CPUs, there’s a duopoly. GPUs, there’s a duopoly, now it’s an oligopoly because intel is entering that industry. Memory, it’s oligopoly for for both NAND and DRAM, analog almost part by part, it’s generally a duopoly, same thing for FPGAs. So it’s a very consolidated, concentrated industry. And you have had demand, I think structurally shift up. And this has always been a secular growth industry, it’s always grown, I call between 1.5 to low twos, multiple of GDP, global GDP. So it’s always been a secular growth industry, but that multiplier’s shifted up. And the reason it’s shifted up is broadly speaking because of artificial intelligence. Human beings, when they write software code, they make a big effort to minimize their, at least good programmers do, use of resources like compute and memory. You used to have to have a budget you had to work with before the dates of cloud computing, only so much memory and only so much storage. The way of cloud computing has thrown that all out the window. And AI is just the inverse. The way you make AI better is you train it on more data. That’s it.
It’s really just that simple. And there’s just a really good rule of thumb, and Microsoft wrote about this in a research paper 10 years ago, or maybe not, 12 years ago, the quality of a given AI algorithm doubles with every 10X increase in the amount of data you used to train that algorithm. And Mark Edrison wrote this op-ed, whatever it was, 10 years ago about how software is eating the world, now AI is eating software. And that just means that the world is getting much, much more compute and semiconductor intensive. And then on top of that, you have all these, at the end of the day, cars are a massive, massive consumer market. And as those become EVs the next AVS, the semiconductor content for car is really exploding. And you put those two things together, the world is just becoming a lot more semiconductor intensive. The bummer, and I would say I’m probably as cautious as I’ve been on semiconductors in a long time right now, it’s still a cyclical industry. If you look at the history in the industry in the eighties and nineties, you have these capacity cycles and they’re driven by the fact that, God I can’t remember his last name, but he was hilarious, TJ, he ran Cypress Semiconductor, he famously said real men own fabs, because there was this trend of going fab-less. But it used to be, in the eighties and nineties, if you ran out of capacity, well, the only thing you could do was build a new fab. And everybody would tend to run out of capacity at the same time, so all these fabs would come them on at the same time. And so you could think of demand as being the smooth, underlying, true demand, the relatively smooth line, and then capacity comes on in the stair step path.
So you would have these vicious cycles, and companies were always going out of business, but then the world moved to fab-less with few exceptions. Today, Intel, Samsung, Taiwan Semi, they’re the are only companies in the world that can make leading edge logic. There’s only three companies that can make leading edge DRAM, maybe four for NAND. And so they got much better about aggregating capacity smoothly. And as a result of that, the cycles you’ve seen last 20 years are just inventory cycles. And the reason for that is the fundamental equation that covers semis is customer inventories must equal lead times. Because if they don’t, and you’re purchasing manager, you get fired. Okay? And so whatever lead times are, that is what customer inventories are. And that leads to this crazy positive feedback loop where if lead times are going up, inventories are building, which causes lead times to go up, which causes inventories to build further. And then as soon as something changes, all that unwinds. And then lead times are going down, you’re burning inventories. So if you’re a semiconductor company, you’re never seeing true in demand. You’re either seeing above market demand because lead times are going out and inventories are building, or below market demand, or below true in demand. And so you’ve had these inventory cycles really consistently for the last 20 years.
What you have right now is, I think a massive inventory cycle. And everything we talked about, the economy slowing even before the fed hikes hit, PCEs shifting away from goods towards experiences. I think demand for semis is almost inevitably going to decelerate a little and that’s going to lead to an unwind of this inventory cycle. And then all the capacity that’s being brought on probably makes it worse. But then I think, you get to the other side of that, and you’re left with that industry that used to grow at 2X nominal GDP to one that probably now is a 3X nominal GDP grower. And you still have that super consolidated supply structure. You’re now having people saying semiconductor companies should be valuing software companies. And no, they shouldn’t. You have a bunch of people. Every fund I know that’s under 50 billion is frantically looking for a semiconductor analyst, where somebody’s really good at semis, have a lot of tourist to the sector. And it’s just when these companies miss, they miss big. Just going back to the fourth quarter of 2018, you can see some really, really, really big misses. So I would say relatively cautious on semis.
4. 14th Five-Year Digital Economy Development Plan – Lillian Li
“It’s the Chinese government’s wishful blueprint. It’s a guidance document that’s put together through rounds of discussions and buy-ins from provincial, municipal and state levels. Still, if any startup or large corporations release the OKRs, there’s no guarantee they will all happen. The history of Chinese Five Year Plans (FYP) is littered with their failures as much as their successes…
…Key takeaways
- The anti-monopoly and other regulations ensuring fair competition will continue throughout 2021 to 2025 – it seems like there’s significant intent to bring in rules of law to this domain in order to remove systemic risk. More rules around data safety and fair competition seem inevitable given the tone of this document.
Implications:
- More comprehensive laws and regulations are coming that will specify the limits of platforms and promote consumer and worker welfare.
- The exact methodology for how consumer welfare and fair competition will be guided is still being defined, leaving a certain margin of error for interpretation.
- Fintech will be seen as finance by another name and will be regulated as such.
- Given the indicators around transaction growth and e-commerce, I also do not think the government wants to see platforms completely destroyed. Who’s going to deliver the growth if everyone’s stagnating?
- Timing will be the tricky part and I have no insight here.
Key takeaways
- Platform players specifically are asked to step up and become de facto institutions – Tech giants are being asked not what their country can do for them but what they can do for their country. In the guidance plan, the tech players are asked to help with sharing data for future data exchanges and to open their technology stack to help SMEs and other industries digitalise.
Implications:
- I don’t think platforms will be nationalised, though their functions could become somewhat grey. They are faced with a carrot and stick situation. For instance, they could be asked to help Chinese industries digitalise through DingTalk, Tencent middleware, PDD agricultural investment fund and Meituan’s new retail functions, and not to double down on their current consumer platforms, as there are implications for consumer welfare encroachment.
- I’m sanguine about this, as I think all Chinese consumer tech platforms are being offered a chance to have a second leg as a B2B company. They have the government’s support if they go forward with it. Put another way; they also have a cornered resource since China will not be asking AWS, Google or Salesforce to help with China’s digital transformation anytime soon.
Key takeaways
- Software and manufacturing cloud is front and centre of policy. It receives strong tailwinds and platforms have a role to play – What gets measured gets done, and in the indicators for the Digital Economy Five-Year Plan, the size of the software and IT service industry is being asked to grow by at least 72% 2025.
Implications:
- The focus for manufacturing industries seems to be the digitalisation of the supply chain I expect many startup players in this space to accelerate through funding and government support in the coming years. More on this in the State of Chinese Cloud part I
- Agricultural tech is also seen as a top priority given the frequency it gets mentioned (seven times in the document), it is still a 13.8 trillion RMB ($2.1 trillion) that employs 25% of the Chinese workforce.
- Open-source software gets several shoutouts as a way to harness decentralised software manpower. This has also followed what I’ve observed in the VC community, opensource in China has been having a hot year in 2021. Now with government backing, expect Chinese open-source to go mainstream in the coming years. I’ll be posting more frequently on this topic too.
5. Fluke – Morgan Housel
Forecasting is hard. And not because people aren’t smart, but because trivial accidents can be influential in ways that are impossible to foresee…
…One night in college – I remember it was late, maybe midnight – I was reading a blog post about hedge fund manager Eddie Lampert. It was written by a guy named Sham Gad, who I had never heard of. I can’t remember where I found his blog; maybe I was searching for information on Lampert, who I admired.
Sham wrote that Lampert went to Harvard. I knew that was wrong – he actually went to Yale. Obviously it doesn’t matter, who cares? But using my student email address (which I rarely used but turned out to be important) I emailed Sham to let him know he was wrong. I never do stuff like that, then or now. The common denominator of the internet is misinformation. I have no idea why I thought it was necessary.
Sham’s a nice guy. He responded and said thanks, he’ll fix it.
A few minutes later he sent another email: “Hey I see from your email address that you go to USC. I’ll be in Los Angeles tomorrow. I’ve never been before, what’s the best way to get from LAX to downtown?”
It was a weird thing to ask a stranger who just trolled your blog. But it’s a reasonable question. If you’re familiar with LA you know there is no good answer. It’s the least transportation-friendly city in the world.
I don’t know why, but without thinking I responded: “It’s hard. I can pick you up. Let me know when you get in.”
He said great. I’ll see you tomorrow.
I’m a private guy. I’ve never done anything like this. At this point my relationship with Sham consisted of 10 cumulative sentences. I didn’t know if he was 17 or 87 years old. But the next day I was driving to LAX to get him.
We stopped at Chipotle on the way back. While eating he said, “I haven’t booked a hotel yet. Is there one nearby you can drop me off at?”
Adding to the list of things you shouldn’t say to a stranger, I said, “You can crash on my couch.”
“Wow, thanks,” he said.
I texted my girlfriend and said, “I met a guy named Sham online. I just picked him up at the airport and he’s sleeping on our couch tonight.”
“Excuse me?” she said.
I know, I’m sorry. I don’t know why I agreed to this…
…The next summer I was interning at a private equity firm. One day – and I remember this occurring within the same hour – two life-changing things happened.
Global credit markets started exploding in 2007, the preamble to the financial crisis. The firm I was at wasn’t in great shape. They told me there wouldn’t be a full-time spot for me after I graduated. I’d have to leave the next month.
That hurt. I needed to find a job as the economy was melting down.
I also needed to finish a project I was working on, researching logistics companies for the private equity firm. That included gathering information on a tiny public company called FreightCar America.
I went to Yahoo Finance. I didn’t find much, but just before clicking away I saw one lonely article in the FreightCar America news feed.
It was a Motley Fool article written by … Sham Gad. (It’s here).
Hey, I know that guy!
I emailed Sham for the first time in a year and told him how cool it was that he was writing for a publication.
We chatted for a bit. I told him I was looking for a new job. Anything. I was desperate.
“The Motley Fool is hiring writers,” he said. “I can put in a good word.” He owed me a favor, after all.
And that was that. I became a Motley Fool writer and stayed for ten years.
I’ve been a writer my whole career. It was never planned, never dreamed, never foreseen. It only happened because Sham got Eddie Lampert’s alma mater wrong and I needed a job at the very moment he wrote a blog post about a company I was researching at a job I was about to be laid off at.
6. Our Take on the Data Deluge, and What’s Next – Dharmesh Thakker, Chiraag Deora and Jason Mendel
Today, our company Collibra*, which focuses on data intelligence—particularly around areas like compliance—also hit a corporate milestone when it announced its latest $250 million financing. It all underscores just how detailed and granular the data market has become, and how much market value is up for grabs as companies both 1) increasingly seek out better data to make more-informed decisions, and 2) use data to improve customers’ experiences.
So what’s driving this data deluge? And how long can it continue? Our research and discussions with hundreds of companies over the last five or more years have highlighted six key factors driving the creation and growth of data and business-intelligence (BI) companies. They’ve also given us insights around how the market may shift in the coming years, so we’re sharing some predictions here too.
Literally, zettabytes of data
The first factor driving the growth of new, data-focused technology is simply the unbelievable volume of data being produced today—data that needs to go somewhere to be useful. Data is being produced from all around us whenever we interact with mobile applications, shop online or even through customer support interactions. If technology is being used, data is being created. Research firm IDC predicts that the global datasphere will grow to 143 zettabytes (for context, each zettabyte is 1 trillion gigabytes) by 2024—a 26% increase from the 45 zettabytes of data that were around in 2019.
It’s obvious, but important we say it anyway. The shift to the cloud is real!
We are still very early in the public-cloud adoption journey, as the majority of data still resides in legacy, on-premise data centers. By 2025, IDC estimates that approximately 46% of the world’s stored data will reside in public-cloud environments. This is a direct driver of the massive increase in data, and new data technologies, as the cost of compute and storage in the public cloud is much lower–there are no upfront capital-expenditure requirements, and access to data is often governed by reasonable, pay-as-you-go or consumption-based pricing. In addition, the automation that comes with the cloud allows companies to free up system engineers from worrying about customizing on-premise systems, and instead focus on other data-management priorities. The migration to cloud promotes flexibility, scalability, and cost efficiency in a way not previously possible with on-premise deployments.
Consumers need information, and they need it now.
Old-style, batch data sets historically have been used for many analytics needs; in this method, data is gathered over time prior to being analyzed. There are and will continue to be great use-cases for batch analytics, including managing payroll or customer billing. But with the advent of mobile computing and the Internet of Things, among other trends, there has been a pressing, new need for analyzing data in real time. Use cases here include fraud detection, tracking real-time ETAs on ridesharing applications, managing the temperature of your home as the day progresses, and many more. Per IDC, the market for real- time or continuous analytics is expected to grow to $4.4 billion by 2024. Aside from enabling a different set of applications, real-time analytics contributes heavily to the growth of data given the constant need for up-to-date data.
7. Why 7% Inflation Today Is Far Different Than in 1982 – Greg Ip
Consumer price inflation in December, at 7%, was last this high in the summer of 1982. That’s about all the two periods have in common.
Today, the inflation rate is on the rise. Back then, it was falling. It had peaked at 14.8% in 1980, while Jimmy Carter was still president and the Iranian revolution had pushed up oil prices. Core inflation that year reached 13.6%.
Upon becoming Federal Reserve chairman in 1979, Paul Volcker set out to crush inflation with tight monetary policy. In combination with credit controls, that effort pushed the U.S. into a brief recession in 1980. Then, as the Fed’s benchmark interest rate reached 19% in 1981, a much deeper recession began. By the summer of 1982, inflation and interest rates were both falling sharply. Four decades of generally low-single-digit inflation would follow.
“We have had dramatic success in getting the inflation rate down,” one Fed official observed that August. But Mr. Volcker had other problems to contend with: His high interest rates had pushed Mexico into default, touching off the Latin American debt crisis, and unemployment would climb to a post-World War II high of 10.8% that fall.
Unemployment took out that record in the early months of the Covid-19 pandemic in 2020. Since then, it has been falling rapidly as the economy roars back thanks to vaccines, fewer restrictions on mobility and ample fiscal and monetary stimulus. In December, unemployment sank to 3.9%, closing in on the 50-year low of 3.5% set just before the pandemic.
Monetary policy then and now couldn’t be more different. Back in 1982, the Fed was still targeting the money supply, causing interest rates to fluctuate unpredictably. Today, it largely ignores the money supply, which expanded dramatically as the Fed bought bonds to hold down long-term interest rates. Its main policy target, the federal-funds rate, is close to zero.
Rather than 1982, two previous episodes when inflation reached 7% might hold more useful lessons for today. The first was in 1946. The end of the war had unleashed pent-up demand for consumer goods, and price controls had lapsed. Inflation reached nearly 20% in 1947 before falling all the way back. Today, consumption patterns have similarly been distorted and supply chains disrupted by the pandemic.
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