Based Jeff Bezos

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Perception

At the commencement of the internet did anyone perceive that URLs like google.com would be worth billions of dollars? To begin with google was quite straightforward; a URL and some mathematics that could search the internet. It was very difficult to anticipate at that stage what it would become. Even today, save for their vast hardware component, Google’s value is still ethereal. The IP and the value is the software. All the cool stuff is just software. 

With this in mind I want to share a video that contains a terrific summary about what wealth is. Incredibly, it has only 230 views at the time of writing. It is three minutes long and the man speaking is David Deutsch, the father of the universal quantum computer. In the video he is talking about something called “constructor theory” which naturally has a website all of its own if you are interested. 

He explains:  

“wealth is really about ‘transformations’; can you make things happen and is knowledge required before it can happen?” 

Elon Musk can make a lot of transformations happen in the physical world. See the number of Tesla cars or Starlink satellites he has manifested into existence. Equally, Google makes a lot of transformations happen too with its software. Their information knowledge machine is why they are so wealthy. 

One of the reasons I like Bitcoin so much is that it contains both knowledge and physical transformation. There is proof in the chain that someone exerted a lot of computing power to generate the coin. I know when I receive a bitcoin the amount of transformation that  went into its production (in this case in the form of digital effort). Yes, it is ethereal when it arrives, but it most certainly is not in its production. 

Very few people perceive that today though. Still, people do not really understand why the massive effort of mining makes bitcoin valuable. Many people believe that effort is wasteful and the government’s database of fiat money is a superior solution. 

How can we not conceive that a database of wealth holdings with some nominal accounting mechanism like an Australian dollar is worthless? It has no relationship to knowledge, it has no relationship at all to the physical world. It is solely a collective belief mechanism supported by government decree. 

It is not a criticism, fiat money has worked like the magic that it is. Simply I’m pointing out that the anomaly generates opportunities for people that see things a bit differently. In the same way as people could not really perceive property rights, or the value in the internet, people cannot perceive digital property. 

Can I make transformations happen with this asset? Is it possessed of knowledge and transformations? Nobody asks those questions. 230 people are thinking about it and now you are too.  

Not me gov. 

Politicians meet a lot of people. Reasonably, one of the questions they ask is “how’s it going” and people are responding with “not that well, Jim”.

Take for example the government's plan to build ‘1.2 million well located new homes in the next five years’. Why is that target being missed? Simply because builders profit margin has disappeared in interest cost. Assume you build an $800,000 home. Let’s say your average borrowing amount is $500k at 6.5% (I’m being generous) over 18 months is roughly $50k in interest cost. Maybe they are making $150k all up if things go (very) well on a build like that. The margin for error is tiny. So, instead of being ambitious and building five each year, maybe you build two. It’s not as good, not anywhere near, but the chances of going bust are much lower too. 

Australia just isn’t set up to be a country that can tolerate high interest rates. No wonder then the Treasurer is now sitting on the throat of the central bank. 

Something has to give. You either have higher rates, slower growth and watch the housing market slowly die. Or you have lower rates, sacrifice the Australian dollar and keep the show on the road. The weak dollar policy is really a free hit for Australian governments. There isn’t the currency pride here that Germany once had in the Deutschmark, or that the Swiss have in the Franc. Do Australians care if the dollar tanks other than the two weeks a year they aren’t here. I don’t think so.  

Obvious choice then. No way this government chooses the hard road. 

Another BRIC in the wall

The BRICS group was invented in 2001 by Goldman Sachs economist Jim O’Neil. He grouped together the emerging nations of Brazil, Russia, India and China to explain his view that by 2050 they would be the world's largest trading bloc. 

It would be another 15 years, 2016, when the nations themselves started formalising their meetings. At that point, the G7 was far larger, far more economically powerful and far more organized. In their arrogance, the G7 countries pretty much ignored the BRICS and continue to do so today.

In January, the United Arab Emirates joined along with Iran, Egypt and Ethiopia. There wasn’t much written about this in the Western press because ‘whatever’. This week, Turkey revealed its application to join. It has not been approved but almost certainly will be. I have to say, the 2024 members all have a very ‘Ottoman Empire’ feel about them.

Even so, it was crickets in the Western press again. A simple search of Australia’s leading financial newspaper has this to say. 

Bloomberg gave it a few paragraphs but that was about it. 

I am sure in a few years we will ‘wonder how that happened’ but it is happening now. What we like to call the ‘less developed’ world, is coming together. ‘Less developed’ apart from their airports which are very often better (UAE and China) or their education systems which are almost certainly better (all of them). 

The critical element in all of this is what currency they will settle their trades in? Today it is undoubtedly the US dollar but the longer this goes on the less likely that will be. At the scale they now operate it is becoming strange to use a currency of their number one adversary (at least in the case of Russia, China, Turkey and Iran). They must surely get together and ask themselves at their meetings “why are we doing this?”.

The next BRICS summit is in late October in Kazan, Russia. Two weeks before the US election. It should be an interesting one. 

Meme of the week

On meme’s again. I enjoyed this podcast from the infamous account @BasedBeffJezos. It was an anonymous account on Twitter for a long time, famous for posting funny memes and was controversially outed after an investigation by Wired Magazine. It turned out the man behind it was a Physicist and quantum computing researcher. In this section, they talk about memes and the power of memes as well as how they might pull down the quality of discourse generally. 

They have been very important for bitcoin because their viral nature spreads simple information extremely well. I have often said bitcoin has no marketing budget and no marketing department. That is partially true, the memes have helped spread the word a lot though.  Some are immediately understood, some are incredibly complex and multi-levelled. 

Personally I love them. As Guillaume explains “we would sneak in deep truths inside jokes”. 

This week's winner contains no hidden value, no alpha and no deep truth. It simply happens to be amusing. 

Euro-Trash

Volkswagen has never closed a factory in Germany in its 87 year history. They remain a vastly profitable company but margins are being squeezed and they cannot sell their electric cars. One of the reasons for that is that charging those cars has become an expensive pastime in Europe, where power is not as cheap as it once was.  

Volkswagen employs 300,000 people in Germany alone. It is deeply embedded in the culture and life of Lower Saxony, a state that owns a 20% stake in the company. Those states are now reacting at the ballot box to the realisation that expensive energy and heavy industry don’t mix. 

Germany is still rich. It is still full of engineers, I doubt they have suddenly lost their work ethic either. It does seem they have lost their tolerance for policies that cost them their jobs and money though. One year from now we will have Germany’s Federal election. Chancellor Olaf Scholz is toast. That’s not really in question, the question for Europe is who will be in the hot seat?

The days of Germany paying all Europe’s bills will very shortly come to an end. If I were Greece, Italy or Portugal I’d be sitting up and taking notice that the free ride on German coat tails is about to end. 

Further information

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