What We’re Reading (Week Ending 11 June 2023)

What We’re Reading (Week Ending 11 June 2023) - 11 Jun 2023

Posted at 07:45h in What We're Reading by Ser Jing & Jeremy 0 Comments

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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 11 June 2023):

1. Real estate is China’s economic Achilles heel – Noah Smith

Painting with a broad brush, you could say that China shifted from an export-led economy to a domestic-investment-led economy after 2008. And the biggest chunk of that domestic investment, by far, was real estate.

Real estate development and its related industries (such as real estate finance) don’t just create places for Chinese people to live; they also create vast amounts of employment in the Chinese economy. That’s a big problem right now, because in the wake of the real estate crash that began in 2021, China’s unemployment has risen a lot — officially, unemployment for the 16-24 age group is now at 20.4%, compared to 6.5% in the U.S. Having a vast number of unemployed young people is a threat to both social stability and the future quality of the workforce, and it’s definitely something that’s worrying the Chinese government right now.

That real estate bust, by the way, is still going on, and — as you might expect for a sector so large, it’s weighing heavily on the rest of China’s economy. The overall narrative about China’s recovery in early 2023 has been recovery from the Zero Covid policies of late 2022 — growth was forecast to bounce back to a rapid 5.2% this year. But the most recent monthly economic data shows that the troubles are far from over. Here’s Bloomberg:

China’s economic recovery weakened in May, raising fresh fears about the growth outlook…Manufacturing activity contracted at a worse pace than in April, while services expansion eased, official data showed Wednesday, suggesting the post-Covid rebound had lost momentum…

A stronger recovery in China will also depend on a turnaround in the property market, which makes up about a fifth of the economy when including related sectors. Home sales have slowed after an initial rebound, while real estate developers continue to face financial troubles.

It’s highly likely that underneath the headline-grabbing drama of Zero Covid, the real force dragging down China’s short-term growth is the general crisis in the real estate sector that began a year and a half ago. That crisis is still ongoing, with more defaults coming periodically. As Adam Wolfe reports in a detailed thread, residential real estate investment is falling:

And that’s in spite of the Chinese government’s frantic efforts to revive the sector. In the past, China was able to use real estate as a form of fiscal stimulus that cost the central government very little — the government just called up the state-controlled big banks and told them to lend more, and the banks lent to property developers. That stimulus came at the expense of long-term productivity growth (since real estate tends to have lower productivity growth than other sectors), but it did prevent China from experiencing recessions for a long time. With the current crash, though, that policy looks to have reached the end of its rope.

The fact is, China just doesn’t need that many more places to live. Even as of 2017 — six years ago! — China had already basically reached developed-country levels of living space per person.

As China built more and more, vacancy rates rose steadily in all big cities except for the four “Tier 1” cities (Beijing, Shanghai, Shenzhen, and Guangzhou). Overall, vacancy rates were significantly higher in China than in most rich countries:…

…In any country, property will be an important component of wealth, alongside stocks and bonds. But in China, with its underdeveloped stock and bond markets, almost all financial wealth is real estate:

From looking at house prices compared to incomes, it’s clear that much of Chinese real estate is bought as an investment property rather than for its value as a place to actually live (and yes, this is speculative bubble behavior). In San Francisco — America’s famously least affordable big city — a typical house costs 10 times the typical resident’s annual income. In Chinese cities this ratio is often much higher:..

…The biggest losers from the real estate bust, however, will probably be China’s local governments.

China’s local governments famously rely on land sales rather than on property taxes for most of their revenue. The real estate market is thus what allows local governments to both provide essential public services and to conduct local industrial policy — which, until the mid-2010s, was China’s main type of industrial policy…

…Xiong explains that this system has a bunch of advantages and disadvantages. On the plus side, buying land in a city is basically like buying equity in that city — if the city government can produce local growth, your land price goes up. So businesspeople and homeowners all become shareholders in the city, which aligns everybody’s incentives toward growth. On the downside, the system creates a ton of different structural incentives for local governments to borrow too much, and for private investors to over-invest in un-economical and risky real estate projects, and for banks to finance these projects too cheaply. In other words, the combination of the local government sector and the property sector is a big reason why real estate looms so much larger in China’s economy than in other countries, and a big reason why the sector got so bloated.

Ultimately, relying on land sales to finance local governments is a strategy that just has a natural time limit. Eventually you run out of valuable land to sell. China’s local governments look like they’re hitting that point, which is why they’re increasingly asking the central government for money. And the central government is stepping in to replace the revenue from the lost land sales:

This means that many of the advantages that China got from federalism and local experimentation and initiative during its amazing growth boom in the 90s, 00s, and early 2010s will now be forfeit. Industrial policy will increasingly be conducted from the center; Xi Jinping and his clique will be making a lot more of the decisions regarding who builds what where, instead of partnerships of local governments and businesspeople. The virtuous cycle where the property sector aligns the interests of local governments and businesses toward growth will now be weakened if not broken altogether in many places.

2. Post-war Germany’s lessons on inflation – Michael Fritzell

Costantino Bresciani-Turroni was an Italian economist that lived between 1882 and 1963. He’s famous for being an anti-fascist intellectual and a proponent of free-market economics.

But more importantly, he wrote a book called The Economics of Inflation, which is widely regarded as the definitive book on Germany’s experience with hyperinflation between 1919 and 1923…

…The first World War broke out on 28 July 1914 when Austria-Hungary declared war on Serbia following the assassination of Archduke Franz Ferdinand. Germany joined the Austria-Hungary coalition. And on the side, Russia, France, the UK and the US formed the Allied forces of World War 1.

Just three days after the start of the war, the German central bank (“the Reichsbank”) suspended the conversion of its notes to gold. The German currency (“the mark”) became paper money without any value anchor. It, therefore, became known as the “paper mark”, as opposed to the previous, gold-backed “gold mark”.

The reason behind the suspension was that the government knew that it would be unable to finance the war through tax revenue. Instead, the Reichsbank took it upon itself to print money to cover any deficit. And in the following four years, the Reichsbank routinely bought government bonds used to finance the budget deficit…

…From July 1914 to the end of the war in December 1918, Germany’s total government debt rose from 300 million marks to 55 billion marks. The war cost roughly 147 billion marks in total, and so more than 1/3 of it was financed through government borrowing, much of it financed through central bank support…

…The war ended on 11 November 1918 with a German surrender, driven by a new German civilian government. From then onwards, the exchange rate started to depreciate rapidly – faster than domestic prices and the volume of circulation.

There had been hopes that a German victory would lead to spoils of war that could alleviate the country’s debt burden. But once the government declared defeat, those hopes were crushed.

In the eight months after the war ended, the budget deficit reached the 10 billion mark – an incredibly high number. when the Socialist Party took power in November 1918, it didn’t have the strength nor the ability to impose the taxes necessary to balance the budget.

The theory prevailing at the time in Germany was that the depreciation was caused by a deterioration in the balance of payments. But foreign voices and especially the British, believe that the depreciation of the currency was instead caused by an excessive budget deficit.

It’s possible that the holders of the mark feared heavy reparations payments and therefore sold the currency in anticipation of a coming crisis. The Treaty of Versailles was signed on 28 June 1919. The Treaty might have had a psychological influence on the German public, who feared that the government would resort to money printing to fund the deficit.

In reality, the budget deficits would have been high with or without the reparation payments. And the payments actually made under the Treaty of Versailles were not particularly onerous, representing only 1/3 of the total deficit between 1920 and 1922…

…Here is the exact process in which inflation pressures built up in the economy:

The issuance of paper money caused the currency to depreciate as speculators use the newly issued money to buy foreign currency or buy cheaper foreign goods for import.
After the currency depreciated, inflation picked up as imports – especially raw materials – became more expensive.
Later on in the process, the newly printed money worked its way through the economy and eventually led to higher wages. But wages didn’t adjust immediately – instead, they adjusted with a long lag that caught the population off-guard.

There was a narrative early in the post-war era that a weaker currency would stimulate the economy. That was true, but only to a small extent. When the currency depreciated, companies saw their profit margins increase as selling prices adjusted quickly while wages took much longer to adjust. Companies then reinvested their profits and and “fake prosperity” ensued.

Exports did particularly well since they were sold at foreign, higher prices. Inbound tourism to Germany took off. Railway charges did not increase in proportion to the depreciation of the mark, so foreigners were able to enjoy cheap travel when they came to Germany. Pure labour arbitrage industries such as shipyards also did well as wages in Germany fell compared to foreign competitors.

Meanwhile, interest rates remained low. There was a kind of yield curve control in place, with the official discount rate fixed at 5% between 1915 and July 1922, even though inflation accelerated from 1919 onwards to incredible levels.

Instead of raising the interest rate when inflation picked up, the Reichsbank restricted credit instead, favouring certain borrowers over others. It continuously extended credits to private speculators, who proceeded to use these loans to buy foreign currency and profit from the depreciation of the mark. It’s unclear how these borrowers were selected. But they appear to have had a cosy relationship with the Reichsbank – to say the least…

…The hoarding of foreign exchange became more serious throughout 1922. German industrialists formed the habit of leaving the profits they made from exports overseas. Germans began to sell houses, land, securities – anything really – to get hold of foreign currency.

Eventually, Germans started using foreign exchange for their day-to-day transactions. Merchants began to set prices in the gold mark or foreign currency. While salaries were still paid in paper marks, wage earners would rush to buy goods as soon as they received the money. Or convert the money into foreign currency as soon as possible.

In February 1923, the Reichsbank tried to support the mark exchange rate artificially through foreign exchange operations. But continuous issuance of paper money caused inflation to continue, and by April, the dam finally broke with the mark being dumped at a record rate.

Workers came up with solutions to the inflation problem by adding surcharges for the depreciation of the currency added onto wage contracts. Wages became tied to cost-of-living indices.

It was only in 1923 that hyperinflation got out of control. Taxes were inflated away to almost zero since they were paid with a long lag and tax receipts ended up being only represented 0.8% of government expenses. The rest of the government’s tax revenues came from printing money. By the end of 1923, 75% of all government bonds were held by the Reichsbank…

…On 15 October 1923, a new bank called the “Rentenbank” was created. This bank issued liabilities that were meant to be used as a substitute for the paper mark. Later that year, the value of the paper mark was stabilised at a rate of 4,200 billion marks for a gold mark. And one Rentenmark became equivalent to one gold mark.

The new Rentenmark wasn’t convertible into gold. But just the simple fact that the new money had a different name from the old instilled confidence. As Bresciani-Turroni explained:

“Of the simple fact that the new paper money had a different name from the old, the public thought it was something different from the paper mark… the new money was accepted, despite the fact that it was an unconvertible paper currency.”

And so, when people stopped hoarding foreign currency, the velocity of circulation of paper marks declined. And the increased willingness to hold domestic currency reduced the inflation problem in and of itself. The Rentenmark ended up circulating together with the paper mark for almost a year.

The passing from hyperinflation to complete stability was sudden. The budget was re-established and expenses cut so that equilibrium was reached. The introduction of new taxes and reduced pressure in terms of reparation payments also helped. In 1924-25, the government finally achieved significant budget surpluses.

Counter-intuitively, a shortage of money emerged despite trillion dollar bills. The reason was that domestic prices had increased so much, and the depreciation was so severe that there was not enough money to satisfy the volume of transactions at current prices.

This shortage was best measured through the concept of “real money supply” (=money supply deflated by inflation), which started shrinking from late 1923 onwards. The circulation of money in mid-1922 was 15-20 times the pre-war days, while prices had risen 40-50 times.

The shortage of money in real terms led to the following outcomes

Trade was arrested as companies could not gain access to working capital. Factories closed, and unemployment rose.
Interest rates increased, and heavily indebted individuals went bankrupt. At the end of 1923, the “call money” interest rate reached 30% per day.

The real money supply shrunk so much that eventually, the entire money supply amounted to only 444 million gold marks, compared to a Reichsbank gold reserve of 1 billion gold marks. That enabled the Reichsbank on 30 August 1924, to fix the conversion rate of the new Reichsmark at a rate of 1 trillion paper marks per US Dollar. In other words, since the value of the money supply had dropped below the Reichsbank’s holdings of gold, it was easy to peg the currency to gold yet again.

After the new Rentenmark and Reichsmark were introduced, prices stopped rising, and the paper mark strengthened against gold. Factories re-opened, unemployment declined, and confidence revived.

3. Why AI Will Save the World – Marc Andreessen

What AI offers us is the opportunity to profoundly augment human intelligence to make all of these outcomes of intelligence – and many others, from the creation of new medicines to ways to solve climate change to technologies to reach the stars – much, much better from here.

AI augmentation of human intelligence has already started – AI is already around us in the form of computer control systems of many kinds, is now rapidly escalating with AI Large Language Models like ChatGPT, and will accelerate very quickly from here – if we let it.

In our new era of AI:

Every child will have an AI tutor that is infinitely patient, infinitely compassionate, infinitely knowledgeable, infinitely helpful. The AI tutor will be by each child’s side every step of their development, helping them maximize their potential with the machine version of infinite love.
Every person will have an AI assistant/coach/mentor/trainer/advisor/therapist that is infinitely patient, infinitely compassionate, infinitely knowledgeable, and infinitely helpful. The AI assistant will be present through all of life’s opportunities and challenges, maximizing every person’s outcomes.
Every scientist will have an AI assistant/collaborator/partner that will greatly expand their scope of scientific research and achievement. Every artist, every engineer, every businessperson, every doctor, every caregiver will have the same in their worlds.
Every leader of people – CEO, government official, nonprofit president, athletic coach, teacher – will have the same. The magnification effects of better decisions by leaders across the people they lead are enormous, so this intelligence augmentation may be the most important of all.
Productivity growth throughout the economy will accelerate dramatically, driving economic growth, creation of new industries, creation of new jobs, and wage growth, and resulting in a new era of heightened material prosperity across the planet.
Scientific breakthroughs and new technologies and medicines will dramatically expand, as AI helps us further decode the laws of nature and harvest them for our benefit.
The creative arts will enter a golden age, as AI-augmented artists, musicians, writers, and filmmakers gain the ability to realize their visions far faster and at greater scale than ever before.
I even think AI is going to improve warfare, when it has to happen, by reducing wartime death rates dramatically. Every war is characterized by terrible decisions made under intense pressure and with sharply limited information by very limited human leaders. Now, military commanders and political leaders will have AI advisors that will help them make much better strategic and tactical decisions, minimizing risk, error, and unnecessary bloodshed.
In short, anything that people do with their natural intelligence today can be done much better with AI, and we will be able to take on new challenges that have been impossible to tackle without AI, from curing all diseases to achieving interstellar travel.
And this isn’t just about intelligence! Perhaps the most underestimated quality of AI is how humanizing it can be. AI art gives people who otherwise lack technical skills the freedom to create and share their artistic ideas. Talking to an empathetic AI friend really does improve their ability to handle adversity. And AI medical chatbots are already more empathetic than their human counterparts. Rather than making the world harsher and more mechanistic, infinitely patient and sympathetic AI will make the world warmer and nicer.

The stakes here are high. The opportunities are profound. AI is quite possibly the most important – and best – thing our civilization has ever created, certainly on par with electricity and microchips, and probably beyond those…

…My view is that the idea that AI will decide to literally kill humanity is a profound category error. AI is not a living being that has been primed by billions of years of evolution to participate in the battle for the survival of the fittest, as animals are, and as we are. It is math – code – computers, built by people, owned by people, used by people, controlled by people. The idea that it will at some point develop a mind of its own and decide that it has motivations that lead it to try to kill us is a superstitious handwave.

In short, AI doesn’t want, it doesn’t have goals, it doesn’t want to kill you, because it’s not alive. And AI is a machine – is not going to come alive any more than your toaster will.

Now, obviously, there are true believers in killer AI – Baptists – who are gaining a suddenly stratospheric amount of media coverage for their terrifying warnings, some of whom claim to have been studying the topic for decades and say they are now scared out of their minds by what they have learned. Some of these true believers are even actual innovators of the technology. These actors are arguing for a variety of bizarre and extreme restrictions on AI ranging from a ban on AI development, all the way up to military airstrikes on datacenters and nuclear war. They argue that because people like me cannot rule out future catastrophic consequences of AI, that we must assume a precautionary stance that may require large amounts of physical violence and death in order to prevent potential existential risk.

My response is that their position is non-scientific – What is the testable hypothesis? What would falsify the hypothesis? How do we know when we are getting into a danger zone? These questions go mainly unanswered apart from “You can’t prove it won’t happen!” In fact, these Baptists’ position is so non-scientific and so extreme – a conspiracy theory about math and code – and is already calling for physical violence, that I will do something I would normally not do and question their motives as well…

…This time, we finally have the technology that’s going to take all the jobs and render human workers superfluous – real AI. Surely this time history won’t repeat, and AI will cause mass unemployment – and not rapid economic, job, and wage growth – right?

No, that’s not going to happen – and in fact AI, if allowed to develop and proliferate throughout the economy, may cause the most dramatic and sustained economic boom of all time, with correspondingly record job and wage growth – the exact opposite of the fear. And here’s why.

The core mistake the automation-kills-jobs doomers keep making is called the Lump Of Labor Fallacy. This fallacy is the incorrect notion that there is a fixed amount of labor to be done in the economy at any given time, and either machines do it or people do it – and if machines do it, there will be no work for people to do.

The Lump Of Labor Fallacy flows naturally from naive intuition, but naive intuition here is wrong. When technology is applied to production, we get productivity growth – an increase in output generated by a reduction in inputs. The result is lower prices for goods and services. As prices for goods and services fall, we pay less for them, meaning that we now have extra spending power with which to buy other things. This increases demand in the economy, which drives the creation of new production – including new products and new industries – which then creates new jobs for the people who were replaced by machines in prior jobs. The result is a larger economy with higher material prosperity, more industries, more products, and more jobs.

But the good news doesn’t stop there. We also get higher wages. This is because, at the level of the individual worker, the marketplace sets compensation as a function of the marginal productivity of the worker. A worker in a technology-infused business will be more productive than a worker in a traditional business. The employer will either pay that worker more money as he is now more productive, or another employer will, purely out of self interest. The result is that technology introduced into an industry generally not only increases the number of jobs in the industry but also raises wages…

…Speaking of Karl Marx, the concern about AI taking jobs segues directly into the next claimed AI risk, which is, OK, Marc, suppose AI does take all the jobs, either for bad or for good. Won’t that result in massive and crippling wealth inequality, as the owners of AI reap all the economic rewards and regular people get nothing?

As it happens, this was a central claim of Marxism, that the owners of the means of production – the bourgeoisie – would inevitably steal all societal wealth from the people who do the actual work – the proletariat. This is another fallacy that simply will not die no matter how often it’s disproved by reality. But let’s drive a stake through its heart anyway.

The flaw in this theory is that, as the owner of a piece of technology, it’s not in your own interest to keep it to yourself – in fact the opposite, it’s in your own interest to sell it to as many customers as possible. The largest market in the world for any product is the entire world, all 8 billion of us. And so in reality, every new technology – even ones that start by selling to the rarefied air of high-paying big companies or wealthy consumers – rapidly proliferates until it’s in the hands of the largest possible mass market, ultimately everyone on the planet…

…But you’ll notice what I slipped in there – I said we should focus first on preventing AI-assisted crimes before they happen – wouldn’t such prevention mean banning AI? Well, there’s another way to prevent such actions, and that’s by using AI as a defensive tool. The same capabilities that make AI dangerous in the hands of bad guys with bad goals make it powerful in the hands of good guys with good goals – specifically the good guys whose job it is to prevent bad things from happening.

For example, if you are worried about AI generating fake people and fake videos, the answer is to build new systems where people can verify themselves and real content via cryptographic signatures. Digital creation and alteration of both real and fake content was already here before AI; the answer is not to ban word processors and Photoshop – or AI – but to use technology to build a system that actually solves the problem.

And so, second, let’s mount major efforts to use AI for good, legitimate, defensive purposes. Let’s put AI to work in cyberdefense, in biological defense, in hunting terrorists, and in everything else that we do to keep ourselves, our communities, and our nation safe…

…China has a vastly different vision for AI than we do – they view it as a mechanism for authoritarian population control, full stop. They are not even being secretive about this, they are very clear about it, and they are already pursuing their agenda. And they do not intend to limit their AI strategy to China – they intend to proliferate it all across the world, everywhere they are powering 5G networks, everywhere they are loaning Belt And Road money, everywhere they are providing friendly consumer apps like Tiktok that serve as front ends to their centralized command and control AI.

The single greatest risk of AI is that China wins global AI dominance and we – the United States and the West – do not.

4. Apple Vision – Ben Thompson

This reality — pun intended — hits you the moment you finish setting up the device, which includes not only fitting the headset to your head and adding a prescription set of lenses, if necessary, but also setting up eye tracking (which I will get to in a moment). Once you have jumped through those hoops you are suddenly back where you started: looking at the room you are in with shockingly full fidelity.

What is happening is that Apple Vision is utilizing some number of its 12 cameras to capture the outside world, and displaying them to the postage-stamp sized screens in front of your eyes in a way that makes you feel like you are wearing safety goggles: you’re looking through something, that isn’t exactly like total clarity but is of sufficiently high resolution and speed that there is no reason to think it’s not real.

The speed is essential: Apple claims that the threshold for your brain to notice any sort of delay in what you see and what your body expects you to see (which is what causes known VR issues like motion sickness) is 12 milliseconds, and that the Vision visual pipeline displays what it sees to your eyes in 12 milliseconds or less. This is particularly remarkable given that the time for the image sensor to capture and process what it is seeing is along the lines of 7~8 milliseconds, which is to say that the Vision is taking that captured image, processing it, and displaying it in front of your eyes in around 4 milliseconds…

…The key part here is the “real-time execution engine”; “real time” isn’t just a descriptor of the experience of using Vision Pro: it’s a term-of-art for a different kind of computing. Here’s how Wikipedia defines a real-time operating system:

A real-time operating system (RTOS) is an operating system (OS) for real-time computing applications that processes data and events that have critically defined time constraints. An RTOS is distinct from a time-sharing operating system, such as Unix, which manages the sharing of system resources with a scheduler, data buffers, or fixed task prioritization in a multitasking or multiprogramming environment. Processing time requirements need to be fully understood and bound rather than just kept as a minimum. All processing must occur within the defined constraints. Real-time operating systems are event-driven and preemptive, meaning the OS can monitor the relevant priority of competing tasks, and make changes to the task priority. Event-driven systems switch between tasks based on their priorities, while time-sharing systems switch the task based on clock interrupts…

… Notably, your fingers don’t need to be extended into space: the entire time I used the Vision Pro my hands were simply resting in my lap, their movement tracked by the Vision Pro’s cameras.

It’s astounding how well this works, and how natural it feels. What is particularly surprising is how high-resolution this UI is; look at this crop of a still from Apple’s presentation:

The bar at the bottom of Photos is how you “grab” Photos to move it anywhere (literally); the small circle next to the bar is to close the app. On the left are various menu items unique to Photos. What is notable about these is how small they are: this isn’t a user interface like iOS or iPadOS that has to accommodate big blunt fingers; rather, visionOS’s eye tracking is so accurate that it can easily delineate the exact user interface element you are looking at, which again, you trigger by simply touching your fingers together. It’s extraordinary, and works extraordinarily well…

…At the risk of over-indexing on my own experience, I am a huge fan of multiple monitors: I have four at my desk, and it is frustrating to be on the road right now typing this on a laptop screen. I would absolutely pay for a device to have a huge workspace with me anywhere I go, and while I will reserve judgment until I actually use a Vision Pro, I could see it being better at my desk as well…

…The keynote highlighted the movie watching experience of the Vision Pro, and it is excellent and immersive. Of course it isn’t, in the end, that much different than having an excellent TV in a dark room.

What was much more compelling were a series of immersive video experiences that Apple did not show in the keynote. The most striking to me were, unsurprisingly, sports. There was one clip of an NBA basketball game that was incredibly realistic: the game clip was shot from the baseline, and as someone who has had the good fortune to sit courtside, it felt exactly the same, and, it must be said, much more immersive than similar experiences on the Quest.

It turns out that one reason for the immersion is that Apple actually created its own cameras to capture the game using its new Apple Immersive Video Format. The company was fairly mum about how it planned to make those cameras and its format more widely available, but I am completely serious when I say that I would pay the NBA thousands of dollars to get a season pass to watch games captured in this way. Yes, that’s a crazy statement to make, but courtside seats cost that much or more, and that 10-second clip was shockingly close to the real thing…

…What was far more striking, though, was how the consumption of this video was presented in the keynote:

Note the empty house: what happened to the kids? Indeed, Apple actually went back to this clip while summarizing the keynote, and the line “for reliving memories” struck me as incredibly sad:

I’ll be honest: what this looked like to me was a divorced dad, alone at home with his Vision Pro, perhaps because his wife was irritated at the extent to which he got lost in his own virtual experience. That certainly puts a different spin on Apple’s proud declaration that the Vision Pro is “The Most Advanced Personal Electronics Device Ever”.

Indeed, this, even more than the iPhone, is the true personal computer. Yes, there are affordances like mixed reality and EyeSight to interact with those around you, but at the end of the day the Vision Pro is a solitary experience.

That, though, is the trend: long-time readers know that I have long bemoaned that it was the desktop computer that was christened the “personal” computer, given that the iPhone is much more personal, but now even the iPhone has been eclipsed. The arc of technology, in large part led by Apple, is for ever more personal experiences, and I’m not sure it’s an accident that that trend is happening at the same time as a society-wide trend away from family formation and towards an increase in loneliness.

This, I would note, is where the most interesting comparisons to Meta’s Quest efforts lie. The unfortunate reality for Meta is that they seem completely out-classed on the hardware front. Yes, Apple is working with a 7x advantage in price, which certainly contributes to things like superior resolution, but that bit about the deep integration between Apple’s own silicon and its custom-made operating system are going to very difficult to replicate for a company that has (correctly) committed to an Android-based OS and a Qualcomm-designed chip.

What is more striking, though, is the extent to which Apple is leaning into a personal computing experience, whereas Meta, as you would expect, is focused on social. I do think that presence is a real thing, and incredibly compelling, but achieving presence depends on your network also having VR devices, which makes Meta’s goals that much more difficult to achieve. Apple, meanwhile, isn’t even bothering with presence: even its Facetime integration was with an avatar in a window, leaning into the fact you are apart, whereas Meta wants you to feel like you are together.

In other words, there is actually a reason to hope that Meta might win: it seems like we could all do with more connectedness, and less isolation with incredible immersive experiences to dull the pain of loneliness. One wonders, though, if Meta is in fact fighting Apple not just on hardware, but on the overall trend of society; to put it another way, bullishness about the Vision Pro may in fact be a function of being bearish about our capability to meaningfully connect.

5. SITALWeek #398 – Brad Slingerlend

Uber Eats will be rolling out up to 2,000 four-wheeled sidewalk robots for meal delivery. Serve, the Level 4 Autonomous delivery bot manufacturer, notes there are already 200 such robots delivering food in LA. Venture capital is pouring into the robotics market, especially for humanoid bipedal and quadrupedal forms. Serve has previously raised capital from Nvidia, Figure just raised $70M for their general-purpose bipedal robot, and, thanks to VC infusions, Sanctuary AI recently unveiled its Phoenix humanoid. General-purpose robots with embedded AI could far exceed the impact that AI has in the purely digital realm, but with a much larger array of potential outcomes…

…This Lex Fridman podcast interview with the director of the MIT Center for Bits and Atoms, Neil Gershenfeld, is packed with insight on computing, AI, and biology. I knew of Gershenfeld because he stumbled into inventing the airbag seat sensor while working on an apparatus for a magic trick in the 1990s. Given the density of knowledge Gershenfeld has, you have to sometimes pause in order to process what he’s saying, but if you can make it to the last quarter of the podcast, I think you’ll see the payoff. One of his more revelatory conclusions is that the advancements from the current wave of AI innovation are now essentially behind us, and its future impact is somewhat predictable. What he means by that conclusion is that we have reached the point where AI can simulate the human brain; therefore, these new systems will be able to do anything a human can do. Meanwhile, humans will also keep doing things humans can do despite AI subsuming a lot of human tasks. Gershenfeld also explains the far bigger disruption will be when AI is embodied in all sorts of objects down to the molecular level. The three minutes starting at this point are particularly insightful. Gershenfeld estimates that embodied human intelligence is eight orders of magnitude more powerful than a human brain on its own. I believe this means we will see far more emergent, unpredictable behaviors from embodied AI than AI running on servers.

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 Apple and Meta Platforms. Holdings are subject to change at any time.

Ser Jing & Jeremy

thegoodinvestors@gmail.com

What We’re Reading (Week Ending 11 June 2023)