What We’re Reading (Week Ending 06 October 2024) - 06 Oct 2024
Reading helps us learn about the world and it is a really important aspect of investing. The late Charlie Munger even went 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 October 2024):
1. My China’s Travelogue: China’s Super Apps, Western Brands, EV Boom and Challenges – Thomas Chua
When I arrived in Beijing, I activated my travel card directly through WeChat or Alipay, scanned a QR code, and that was it—smooth sailing. This seamless, mobile-first approach isn’t just a clever solution; it’s a necessity in a country of such a large scale. It offers an elegant, low-cost, and scalable system that is incredibly user-friendly and available in every city, eliminating the complications associated with traditional transport infrastructure.
In many ways, China’s lack of legacy infrastructure—often seen as a disadvantage—turned out to be a blessing. Without the entrenched banking systems and reliance on Mastercard or Visa that many developed countries face, China was free to reimagine its financial infrastructure from scratch. Where traditional payment systems come with a web of intermediaries and fees, China’s mobile payment platforms—WeChat Pay and Alipay—were built to be faster, cheaper, and more efficient.
However, a super app like WeChat does more than just make payments. It’s a super app, offering a vast range of services, from messaging and social networking to ride-hailing and food delivery. This super-app model emerged out of necessity, as many users in lower-tier cities had limited smartphone storage and data plans. WeChat’s mini-programs solved this problem, providing lightweight apps without requiring additional downloads or installations…
…I noticed all my rides were EVs, as were most cars on the road. I barely saw a dozen internal combustion engine (ICE) vehicles and didn’t come across a single petrol station in Beijing or Xi’an.
Curious about China’s rapid EV adoption, I began asking my drivers about the EV scene and learned that while many in Beijing drove 北汽 (BAIC) EVs due to their low price, the brand wasn’t highly regarded, with past models having plenty of problems. Surprisingly, I didn’t see many BYDs on the road in Beijing, but the drivers told me the brand was more prevalent in Shanghai and Hangzhou.
Tesla was perceived as superior but expensive. When I searched Baidu for the most popular EV, Tesla’s Model Y ranked as the most popular car in 2023.
How did China achieve a 54% electric vehicle (EV) penetration while other countries struggled? One key factor in Beijing is the stringent quota on car sales. To bypass the long wait for a vehicle (a local I spoke with has been waiting for over three years), consumers can jump the queue by opting for an EV instead of ICE or by having children.
When the policy of prioritizing EV purchases was first introduced in the mid-2010s, many people were hesitant to adopt EVs due to concerns over charging infrastructure. In those days, if you decided to buy an EV, you could have gotten the permit immediately. Today, those concerns have disappeared, with private companies installing charging points everywhere…
…During my trip, I visited several top consumer brands and observed foot traffic. Nike stores, to my surprise, were practically empty.
While not as deserted, Starbucks also saw far fewer customers than I expected. Li Ning had moderately more customers, while Lululemon was bustling. Even on busy streets, Starbucks was quiet, with consumers favoring milk tea brands like Chagee or 茶话弄 (Cha Hua Nong). Locals guessed this was due to the weak economy and Starbucks’ high prices.
However, this logic doesn’t fully explain Lululemon’s popularity despite its high prices. My guess is that Starbucks isn’t innovating fast enough for the fickle Chinese consumer. Competitors introduce new flavors at a much faster pace. And if Starbucks’ competitive advantage lies in its mobile app and loyalty program, it holds no advantage in China, where every food and beverage brand has a WeChat presence and can easily implement loyalty programs.
2. TIP661: Betting Big On China & Lessons From Bear Markets w/ Richard Lawrence – Clay Finck and Richard Lawrence
[00:12:23] Clay Finck: So is that a lesson of being more critical of the management teams you partner with? Did that help kind of hone in that side of the process?
[00:12:32] Richard Lawrence: Well, I think that number one, pyramid structures like that are out of bounds for any investor should never invest in a pyramid structure like that.
[00:12:42] Clay Finck: For those who aren’t familiar, what is the pyramid structure?
[00:12:45] Richard Lawrence: Well, the pyramid structure is the family owns 50. 1 percent of a public company that then in turn owns 50. 1 percent of another company and they own the asset. And the value of that asset is transferred to the owners of the top company and shareholders down below basically get nothing.
[00:13:03] Richard Lawrence: And they do it through any number of mechanisms. But paying dividends to minority shareholders, they’re generally not very big on. So you do it through excessive salaries, fees, costs. And so we learn, don’t invest in certain things.
[00:13:17] Clay Finck: Let’s transition here to chat about the Asian financial crisis. Many in our audience are likely aware of the crisis that occurred in Asia in 1997 and 98, but it’s not something we’ve covered too much on the show here.
[00:13:30] Clay Finck: I should also mention that many of our listeners are based in Asia as well. So you refer to this time period as nothing less than an economic nightmare, and there was really nowhere to hide for investors in these markets. How about you give us a sense of what was happening during this crisis that just made it so difficult for Asian economies?
[00:13:49] Richard Lawrence: Yeah, well, Clay, I was having a nice time here talking to you, and now you have to bring up memories of 1997 98. It churns my stomach still today with everything that went on. So, and really with the passage of time, there are fewer people that really understand the extent of the obliteration of value.
[00:14:09] Richard Lawrence: There was the inception of 97, 98 went back years that basically Asian economies were not able to self finance their growth. They were running what economists called current account deficits. And so they were having to borrow US dollars to fund their growth. And that US dollar debt built up, built up, built up.
[00:14:30] Richard Lawrence: And at the same time, they had fixed currencies. To the U. S. dollar. So all the companies were saying, well, if I can borrow dollars at the same price as my Korean won or my Thai baht or my Indonesian rupiah, I’m just going to do that. And so companies borrowed dollars, governments borrowed dollars, everybody was borrowing dollars and no one was hedging the currencies.
[00:14:54] Richard Lawrence: And then on July 2nd, 1997, the bot broke and it went from 25 eventually hitting 55 or 60 and it obliterated balance sheets. If you had 100 million of equity and 100 million of unhedged dollar debt, all of a sudden your debt grew 4 times in size and you needed 4 times the business to repay that debt. Of course, you didn’t have it.
[00:15:18] Richard Lawrence: Particularly when the economies were in recessions. To me, looking back, the dollar debt was really the biggest mistake. Current account deficits were a reflection of that. And the rupee in Indonesia went from 3000 to 15, 000. The one got obliterated within 6 months of July 2nd, 1997, the International Monetary Fund was called in to bail out Korea, Thailand, Malaysia, and Indonesia, which were the main markets at the time.
[00:15:49] Richard Lawrence: China was still a closed economy at the time. So they handled their own problems kind of internally out of sight the stock markets in various countries, like Thailand, Indonesia, went down nearly 90%. The real estate index in Thailand, which was a composite index, went down something like 98%. To do that, I calculated, you go down 80%, and then you go down another 80%, and then you go down another 80%.
[00:16:16] Richard Lawrence: That’s what going down 97, 98 percent is like. And so it was just a complete obliteration. We bottomed at Overlook. We went down from top to bottom about 65%. We really put a herd on our fledging investment management fund at the time, and we bottomed at about 4. 6 times earnings, about 0. 7 times book.
[00:16:37] Richard Lawrence: Interest rates rose because they had to protect their currencies. In Indonesia, the interest rates rose to 99%, and it didn’t stop the currency from declining. But the Indonesians couldn’t raise the interest rates higher because their banking system couldn’t accommodate three digits for interest rates.
[00:16:57] Richard Lawrence: And so interest rates meant nothing in Hong Kong, which had no dollar debt. It had a fixed currency to the dollar, but it was backed by the peg of the Hong Kong Monetary Authority and the government of Hong Kong. Interest rates went to 36 percent and they had no debt. So, you can just see the massive exodus.
[00:17:15] Richard Lawrence: It was a one way street out of Asia, and there I was, left. When eventually, 17 months later, I went out to Photon, and went in and met my friend Michael Chan, and went in and met the guys at Kingboard Chemical, and we survived by the chin of our chinny chin chin, as they say. But it was really something it was a lot of calls at night to my investors, you know, was pre zoom calls.
[00:17:39] Richard Lawrence: It was pre internet. I’d call them up and I’d say this is Richard Lawrence calling from Hong Kong and I’d get right through to the executive because calling from Hong Kong. It must be really expensive phone call. It was morning for the executives, the investors, and I totally wrecked their day. We went down 10 percent 5 straight months, maybe 6 straight months.
[00:17:58] Richard Lawrence: Now, you know why I feel so miserable answering, talking about 97, 98, but of course, like all bear markets, bear markets, self correct. And today, Asia runs current account surpluses. Today, Asia has really good balance of, with their government budgets. And we don’t have unhedged dollar debt. We have huge forex reserves.
[00:18:18] Richard Lawrence: All of that high savings rate, all of that’s come. The inception of that, all of it has come from 97, 98. We all, everybody. Any government official, corporate official, investor, we all learn those lessons. That’s why I think 97, 98 is such a pivotal time. We’ve had other bear markets, but they’re like water on ducks back…
…[00:22:33] Clay Finck: And you even mentioned in your book that you regretted ever listening to Buffett when it came to paying attention to macro. Is there anything else besides the current account deficits that you’ve implemented into your approach where you say you’re macro aware? Is there anything else to that process?
[00:22:50] Richard Lawrence: Yeah, there are. We had five, and then we added one, and then sort of in my Chinese way, I called them the five evils. And then the five evils plus one, but these are current account deficits, government deficits, fast loan growth. In my experience, banks can grow maybe 7 percent a year and not run into all kinds of trouble.
[00:23:08] Richard Lawrence: So, if they’re growing faster than that, they’re going to outgrow their ability to make good loans and know what they’re really lending. Loan to deposit ratios, forex reserves, those are all things that we’re very aware of. We track them religiously twice a year and we communicate them to our investors.
[00:23:24] Richard Lawrence: And in today’s world, we’re in another bear market in Asia, not as severe, but we don’t have a macroeconomic bear market. We have a geopolitical bear market, which is different. It has its severities. But Asia today is still running current account deficits, modest loan growth, very acceptable loan to deposit ratios, very acceptable government deficits, particularly compared to Europe or the U. S. So, it’s, Asia is still very, very competitive, I think…
…[00:46:49] Clay Finck: Since your team is looking at the macro situation or being macro aware and overlaying that on your very micro approach to picking stocks, how would you describe the current macro situation in China?
[00:47:02] Richard Lawrence: Well, let’s start off with the stuff that really matters, which is things like balance sheets. Okay, they got a 3 trillion of forex reserves. The household bank deposits are double the size of the market capitalization of the stock markets. And it nearly tripled the size of annual retail sales. So the individual Chinese consumer has a lot of firepower in their bank deposit.
[00:47:27] Richard Lawrence: Okay, so balance sheets are strong. Loan to deposit ratio is a conservative. The capital adequacy ratio at the banks is okay. So, you know, those balance sheet items are all in very good order. Current account, surplus, small government deficit. That’s not the problem. The problem is really a lack of confidence.
[00:47:45] Richard Lawrence: They’ve lost confidence. As you do in bear markets, as you do in recessions, you’ve lost confidence. And it was triggered by the declines in an overbuilt real estate market. The real estate guys had kind of a heads I win tails you lose kind of approach to real estate development, particularly the private guys.
[00:48:02] Richard Lawrence: They’ve all been gone bankrupt and all been flushed. But the residual is, is that real estate prices probably really have gone down 25 percent if you speak widely. You know, there are pockets where it’s stronger and pockets where it’s weaker. And that was the major asset of Chinese people. That’s what the citizens own.
[00:48:20] Richard Lawrence: They own some equities, but not a lot. And so they’re a bit shell shocked and they get sort of really mixed signals on capitalism from the government. And so their animal spirits have really been doubly repressed by lack of confidence and a concern over the commitment, both growth and capitalism in the country.
[00:48:40] Richard Lawrence: So that’s, that’s kind of where we are at the current time. And then you lever that on top with Geopolitical situation with the U. S. where both sides are at fault. Both sides have brought out the worst in each other and there’s a lot of sort of ganging on. It’s a bit like 10 year olds on a playground.
[00:48:59] Richard Lawrence: There’s kind of ganging up on each other. It’s not really great leadership for the world. This is probably the most important economic relationship in the world today. And the amount of discussion going on between governments is almost minimal. And we don’t have a big base in the United States of diplomats who are really well versed in China.
[00:49:21] Richard Lawrence: China for the last 40 years has not been the problem. And so the diplomats went to Afghanistan, went to Iraq, went to Syria, went to Ukraine and dealing with all those messes and largely sort of ignored China while China needed attention to address some of the fundamental problems. And so we don’t have.
[00:49:39] Richard Lawrence: The great outlook that we should have that we historically had starting with Kissinger on really creating a real relationship with China. And so it’s going to take the better part of the rest of this decade to turn that around. Now, having said that, my investments in China and in Asia are not predicated on US investors moving those stock prices up.
[00:49:58] Richard Lawrence: They’re just not going to come back. The sentiment towards Asia is so negative, but like I said, there’s plenty of, uh, gunpowder in banks and household bank deposits. And so I think that’s what will eventually turn it around, but we need more commitment to reform than we’ve had. There’ll probably be more rounds of stimulus.
[00:50:18] Richard Lawrence: You have to understand that the Chinese do stimulus differently. We don’t open the helicopter and throw the money out. They’re very tactical on how they stimulate, they’ll do tests, they’ll test it in a bunch of provinces, and if it’s successful, then they’ll roll it out. We’re seeing big reforms. They’re just offering refinance of all the mortgages, for example, because the interest rates have gone down.
[00:50:39] Richard Lawrence: Things like that will really help the Chinese citizen, and that’ll bring back animal spirits. It’s a long bear market. We’ve been three and a half years, almost three and three quarter years. And no upward momentum to speak of. So it’ll just take time. That’s the way life is sometimes.
[00:50:55] Clay Finck: China is certainly a very hot topic, both inside and outside the investing world.
[00:51:01] Clay Finck: Some like Overlook have been finding bargains within the Chinese market while others see China as uninvestable to some extent. What do you think is the biggest misconception when it comes to investing in China?
[00:51:14] Richard Lawrence: Well, if you think back to this eight year olds on the playground in the US, there’s a certain arrogance that China’s weak and has been brought to its knees and doesn’t have technology and is massively over levered and whatnot.
[00:51:28] Richard Lawrence: I think that’s not really realistic. If you look carefully at the semiconductor, which is something I’ve been tracking for nearly 24 years, we can try to restrict advanced semiconductors from China, but China takes a very long view of this stuff. And I guess in 8, 10 years, they’re going to have similar level of technology, and that will have happened faster than if we had really sat down and talked about what are the uses in China for the advanced technology, for the advanced chips, how to keep them out of the military.
3. Podcast: Eric Markowitz – Graham Rhodes and Eric Markowitz
I spoke with Eric Markowitz, Partner and Director of Research at Nightview Capital, about an essay he published this year titled, “How a brush with death shaped my long game” (link). We dive straight into the details of the health crisis which shook Eric’s world in early 2023 (link) and then have an open-ended conversation about what he’s taken from it as a husband, father, friend and investor…
…EM: Absolutely. I only survived because of a lot of other things—because I live in a country with access to good healthcare, because I have a wife who kept me alive, and because I had a great doctor and neurosurgeon. My brain surgeon was a friend of a friend, and the night they found the lesion in my brain, I called my best friend, Ben Jacobs, and said, “Take care of my wife and kids if things don’t work out.” He said, “Let’s call Zach.” Zach had just moved to Portland after finishing his neurosurgery residency at Stanford. He looked at my scan that evening and said, “I want to do your surgery.” So, I benefited from this social fabric that kept me alive.
These systems, like friendships, technology, and geography, all played a role. Without them, if I had been alone on an island, I wouldn’t have survived. There’s safety in numbers, but there’s also a danger in following the herd. Sometimes, you don’t want to be an outlier, but in other cases, you do…
…EM: Sure. “Tikkun Olam” is an ancient Jewish concept that essentially means making the world whole again. It’s about making the world a little bit better, and that can be interpreted broadly. It could mean doing charitable work, pursuing direct philanthropy, or finding other ways to contribute positively to the world…
…EM: Right. If your mission is to build something that can last 500 years, you should hope for crises. Crises create opportunities for reinvention within organizations. I’m starting to write about this for a column because it’s fascinating and not talked about enough. People often think crises are bad, but you should absolutely hope for one because that’s what will save you.
One of my favorite examples is a company from about 100 years ago called Kutol. They sold wallpaper cleaner, which was popular when homes were heated with coal and oil because walls would get dirty. But when homes started using cleaner energy like natural gas, demand for their product collapsed. The company was in turmoil.
The CEO’s sister-in-law, a schoolteacher, realized that kids liked playing with the wallpaper cleaner. They decided to repackage it as a children’s toy and, with nothing to lose, launched it as Play-Doh. Play-Doh became a phenomenal success, saving the company from bankruptcy. Kutol is still around today, over 120 years later. Had they not faced a crisis, I’m not sure they’d still exist. They were only willing to try something new because their backs were against the wall…
…EM: Yeah. I began my career as a business journalist and investigative reporter, and although I write a weekly newsletter, I hadn’t been doing much real writing. After I wrote the essay about my health crisis, I started writing a column for Big Think. It’s been fun, like an intellectual playground for me. It gives me something to focus on and a research project to dig into. I’m trying to make these columns really good, which forces me to cut out what doesn’t matter.
Writing is helping me think better, be a better investor, and find good companies. It’s helping me do better for my clients and my family because they’ll read these pieces one day and have their own insights. It’s compounding in a positive way, which I don’t think I was really doing before. Before, it was just about getting through the day—checking off calls, listening to earnings reports. Now, I’m more focused on doing one thing really well.
4. Daniel Yergin – Oil Explains the Entire 20th Century – Dwarkesh Patel and Daniel Yergin
Daniel Yergin 00:06:43
People think of John D. Rockefeller and Standard Oil and they go: gasoline. It had nothing to do with gasoline. John D. Rockefeller was a lighting merchant. What they did is that they rolled back the darkness with kerosene, with lighting. Before that, the number one source of lighting was candles and whaling. The whaling industry was delivering lighting. For the first 30 or 40 years of the oil industry it was a lighting business. Then came along this other guy named Thomas Edison. Suddenly you have electric lights and you say, “That’s going to be the end of the oil business.” But by the way, over here is Henry Ford and others. You’re creating this whole new market in the 20th century for gasoline. In the 19th century gasoline was a waste product. It went for like three cents a gallon.
Dwarkesh Patel 00:07:34
One of the things I learned from The Prize, I didn’t appreciate before. Before the car was invented, when Edison invented the light bulb, people were saying Standard Oil would go bankrupt because the light bulb was invented.
Daniel Yergin 00:07:47
John D. Rockefeller became the richest man in the United States as a merchant of lighting, not as a merchant of mobility.
Dwarkesh Patel 00:07:55
In some of the earlier chapters, you mention that Rockefeller was especially interested in controlling the refining business, not the land owning and drilling. A lot of the producer surplus went into refining. Why did the economics shape up such that the producer surplus went to refining?
Daniel Yergin 00:08:11
Because that was the control of the market. That was the access to the market. The producers needed John D. Rockefeller. There were a few other people but Rockefeller controlled about 90% of the business. He would either give you a good sweating—drive down prices and force you out of business—or force you to sell to him or amalgamate with him…
…Daniel Yergin 00:32:43
OPEC was setting prices, but then the market responds. Demand goes down. In fact, that’s exactly what OPEC did with its prices. It created incredible incentive to bring on new supplies and to be more efficient and undercut. It ended up undercutting its own price. Here’s one of the things I really carried away from The Prize. There are hundreds of really interesting characters in the book, but the two most important characters, one is named Supply and one is named Demand. That’s something that you’ve got to keep in mind with all the other drama that goes on.
Dwarkesh Patel 00:33:22
The interesting thing from the book is that oil did seem to be, at least until very recently, pretty different in that with other sorts of commodities you have strong elasticities of supply. If lithium gets more expensive, you’ll figure out substitutes for lithium and it’s not that big a deal.
Daniel Yergin 00:33:41
Or find more lithium.
Dwarkesh Patel 00:33:42
Yeah. Whereas, at least during the oil crises, it really felt like the entire world economy was just on hold…
…Dwarkesh Patel 00:59:51
How mad are the frackers that they basically solved America’s main geopolitical problem, but they were so successful that they’ve competed away their profits?
Daniel Yergin 01:00:03
That was a period up till about 2017, when it was growth for growth’s sake. Then basically the financial community said, “Hey guys, the party’s over. I’m not going to reward you for growth. I’m going to reward you for sending money back on my investment.” So in a sense, shale is almost a mature industry. I think people don’t understand how transformative it’s been. The US was the world’s largest importer of oil. We were only producing 5 million barrels a day of oil in 2008. Now we’re more than 13.2 million barrels a day. The US is energy independent. People thought it was a big joke. It could never be energy independent. Every president said, “We want energy independence.” Late night comedians could make fun of it. Actually, it’s happened and it’s had huge economic significance. Back in like 2008, the US was spending something like $400 billion a year to import oil. Now we basically spend nothing to import oil.
It’s been geopolitically very significant. That’s been a learning experience for the Biden administration. It turns out that if it wasn’t for shale gas made into what’s called LNG, liquefied natural gas, shipped to Europe, Putin could well have shattered the coalition supporting Ukraine by using the energy weapon with, not oil, but gas. Suddenly you had European politicians coming to the US to try and secure supplies of LNG because they were so worried about it. It really is a revolution that is playing out today. China imports 75% of its oil. It wishes it was in our position…
…Dwarkesh Patel 01:10:26
Let’s talk about solar and renewables. With oil, you have a commodity which is a flow. You can cut it off and you can turn it back on again. It gives the person who’s producing it a lot of leverage. Whereas with wind and solar, if you’re the people producing it, it’s just a capital stock. How does that change the geopolitical situation and the kind of leverage that the producer might have?
Daniel Yergin 01:10:51
It’s a question of scale. What I carried away, the basic premise of energy security goes back to Churchill. He said that safety lies in variety and variety alone, diversification. Wind and solar give you diversification. Electric vehicles diversify your fleet. Those are all there.
For China, wind and solar, electric cars, is very much a strategic issue because they see the vulnerability of importing 75% of their oil, much of it coming through the South China Sea. They know the story of what happened with World War II with Japan. For them, the shift to electric cars is less about air pollution and more about energy security. It’s also about knowing that they couldn’t compete in the global market with gasoline powered cars, but they can with electric cars. Those are the strategic things.
Wind and solar give you a more diversified system. Until you have batteries that can really deliver the storage, you have the intermittency problem. You take California today. People think wind and solar is advanced. It’s true. They are 25% of electric generation in California, but 43% of electric generation comes from natural gas. And that gets back to the data centers. You’re going to need to bolster your electricity power system. How much can you do with batteries and how much can you do with natural gas?
Wind and solar are also stories about entrepreneurship. In The Quest I asked myself, where did the wind and solar industries come from? The solar industry came from two émigrés who had left Europe, one of whom had driven his car out of Hungary in the 1956 revolution. In 1969, he’s a chemist working for the US government. He and his partner decided to go in the solar business. That became the first solar company. They started in 1973. With the wind business, I like to say the modern wind business is the result of the marriage between California tax credits and the sturdy Danish agricultural industry. It was driven by tax credits, but they needed to find wind power machines that could stand up when the wind blew in the Tehachapi Pass.
It took about 30 years for both those industries to become competitive. It only happened around 2010 that they actually became competitive. Now, of course, they’re very competitive but then guess what? Now,they’re all tied up. Renewables are also now tied up in geopolitics and, in what I call The New Map, the movement to the great power competition. The US just put 100% tariffs on Chinese electric cars, 25% tariffs on Chinese storage batteries. We recently had this bill, the Inflation Reduction Act. It’s huge, a trillion dollars the Treasury estimates when it’s done. It’s about climate and renewables, but it’s also about competing with China…
…I have the view that people have had too simple notions of how the energy transition will work.
That’s one of the things in The New Map. If people read one part of it, read the section on energy transition. It tells you that what we’re talking about today is not anything like any other energy transition. Every other energy transition we’ve had has been energy addition. Oil discovered in 1859 overtakes coal. Coal is the world’s number one energy source in the 1960s. Last year, the world used more coal than it’s ever used, three times as much as the 1960s. Now the idea is, can you change everything literally in 25 years?
Some of that thinking was developed during COVID, when demand went down and price collapsed. Part of it is people worrying about energy security. I was just reading last week the budget message from the finance minister in India. She talked about energy security and how they have to maintain economic growth. It’s very important to do that and energy security as well as energy transition. So it’s a different balance. There’s a difference between the North and South. Then there’s the constraints on minerals because as you make an energy transition, what people talk about, it’s more mineral intensive. An electric car uses two and a half times more copper than a conventional car.
We did the study and said, “Okay, let’s take the 2050 goals. And if you want to achieve them, copper supply has to double by about 2035.” What’s the chance of doing that? It takes 20 years to open a new mine in the US. We just did a study. It takes 29 years to open a new mine. Changing a $109 trillion world economy… it’s going to change. You said the development of solar is going to be really important. But things are not going to move in a straight line. We are in an energy transition, but it’s going to be a longer one. Here we are, as you mentioned, in Nantucket, which was a key part of the energy transition because it was a source of lighting in the 19th century from whaling.
5. The 27-Year-Old Billionaire Whose Army Does AI’s Dirty Work – Berber Jin
Sitting behind computers in cities across the world, his startup Scale AI’s workers type out the stories, label the images, and craft the sentences that furnish chatbots with the text they need to better understand human speech patterns. Dubbed data labeling, their tasks range from composing haikus and summarizing news articles to writing stories in languages like Xhosa or Urdu.
The labor-intensive operation has become so in demand by businesses eager to enter the AI race that Scale’s revenue pace tripled last year, boosting its valuation to $14 billion…
…Meta’s code name is Flamingo—a stuffed version of which sat atop an employee’s desk on a recent visit to the startup’s headquarters. After Scale AI bungled a project last year for the tech giant, Wang declared a company emergency and launched an all-hands-on-deck effort to fix the job, called Flamingo Revival, according to former Scale employees.
Early last year, Meta Platforms asked the startup to create 27,000 question-and-answer pairs to help train its AI chatbots on Instagram and Facebook.
When Meta researchers received the data, they spotted something odd. Many answers sounded the same, or began with the phrase “as an AI language model…” It turns out the contractors had used ChatGPT to write-up their responses—a complete violation of Scale’s raison d’être.
The researchers communicated the disappointing results to Scale, prompting Wang to rally the entire company to try and save the contract.
He asked employees to drop everything and create new writing samples to send to Meta. An internal leaderboard showed who had completed the most labeling tasks. The prize for the winner: a paid vacation.
Later, Scale discovered that much of the bad data sent to Meta had come from Kenyans who had become experts in making a quick buck off the Remotasks platform, the former employees said. Scale restricted several new labeling projects to workers based in the U.S. and other wealthy, English-speaking countries. The change didn’t stem the fraud entirely: Some foreign workers found ways to skirt the new rules by buying labeling accounts registered to U.S. residents that they found for sale in group chats on WhatsApp and Facebook.
A Scale spokeswoman said that Scale has cracked down on such activity and the percentage of its freelancers exhibiting fraud fell to under 0.1% in July.
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. We currently have a vested interest in Meta Platforms, Starbucks, Tencent (parent of WeChat) and Tesla. Holdings are subject to change at any time.
