Where finance and media intersect with reality


In the Blind Spot (Robotaxis, Amazon, BoE)


Techno Hubris:

Driverless cars may be “the hardest technical problem of our time”, says Doug Field, who left Apple Car to become Ford’s technology head in the FT, as Ford admits self-driving cars are proving impossible to scale at a profit.

  • In 2015, when everyone in the car industry was predicting that driverless autonomy would be on the roads within five years, I wrote a bit of an opus about why self-driving taxis might never make economic sense. The hurdles seemed very obvious to me. They were not down to technical factors. They were down to utilisation challenges and the limitations of urban geometry. But people in the space (mainly management consultants and tech utopians) just couldn’t understand what I was going on about. (McKinsey was a particularly egregious culprit, going on about it endlessly until even this year.)

    I also had many heated arguments about it face-to-face with colleagues.It was all very frustrating.

    Thankfully the realities of the challenges are finally becoming understood. Cory Doctorow had a very good thread about the issues recently that is worth checking out.If you still don’t get it, consider the economics that underpin the conventional car rental market. Everything is a function of the capital cost of the inventory, maintenance and depreciation, as well as a hyper competitive landscape. In short, rental is a two-sided market.Rental companies woo customers in with rental fees that barely cover the cost of renting a high value capital asset, for the opportunity to gouge them on fuel, insurance and other incidentals. That is the model. It works for longer-term rentals, just about, but it doesn’t and never will work for a short-ride system. Not least because you can’t pass on the insurance costs and liabilities to the customer. Yes, technically we can and probably will be able to create self-driving taxis.

    The point is they will always be cost efficient relative to human-driven equivalents, mainly because of how the risks are distributed and how the cars are utilised. But also because drivers do more than drive. They also supervise the asset. And that actually counts for a lot. (Unless you would rather drive tie up a large amount of capital in the form of a permanent deposit, for the privilige of riding in self-driving cars and still be charged for the mileage, fuel and wear and tear.)

Markets, Business, Finance etc:

  • Norway’s sovereign wealth fund posts a $43.5bn loss in the third quarter.
  • If Amazon is not a growth stock anymore what is it?

    In 2017, I came across a note from BCA Research arguing that Amazon’s model was dependent on continued capital appreciation to fund its salary expenses. It really resonated. We’ve long known that Amazon’s e-commerce business depends on undercutting the competition to achieve and maintain market share. And that it does this by operating on razor-thin margins or at cost — something it can afford to do thanks to the cheap labour it employs and the cross-subsidisation it benefits from via its AWS business. But I’d failed to appreciate the scale of the subsidies it derives from its capital position until then.

    Given Amazon’s core e-commerce business that everyone mostly identifies the Amazon brand has rarely been profitable, this is important.

    AWS, its main cash cow, is a capital and energy-intensive business. If it struggles to maintain growth in an inflationary environment — this could prove Amazon’s unravelling.

    It’s no coincidence that Amazon’s peak valuation came in between July-Nov 2021, just before team transitory was forced to capitulate on the inflation outlook:

    But juxtapose that stock price history with Amazon’s additional paid-in capital expenses:

    Then compare and contrast that with Amazon’s net income chart (courtesy of Trading Economics):

    The analogy I sometimes make is that Amazon is equivalent to a private sector Gosplan system — an economic management system that depended on technocratic cross-subsidisation to allocate capital and resources according to its unique notion of what’s good for people rather than based on what the people actually want and are prepared to pay for.

    The difference is that unlike Gosplan, Amazon never fully controlled the means of production. It focused on stimulating overproduction or underproduction in accordance with its plan through de-facto subsidisation of consumer activity/demand it thought useful to its longer vision. That model works in a deflationary world but could struggle in an inflationary one. In an inflationary world, true customer preferences (rather than subsidised ones) are likely to shine through again. There’s a not insignificant chance they won’t align with the vision Amazon has for the world.

  • The chip shortage is in the midst of a sudden reversal.

Programmable Central Bank Money:

  • A long Twitter thread about the context and history of Central Bank Digital Currencies.
  • The BIS and four central banks complete a successful pilot of real-value transactions on cross-border CBDC platform.
  • Andreessen Horowitz went all in on crypto at the worst possible time.
  • Forget about CBDCs. The future may lie in the India Stack system, which is, according to the IMF, widening access to financial services in an economy where retail transactions are heavily cash based.

Geopolitical Pivots:

  • Poland is doubling down on its German war reparation claim.

    This might all go away if it just got its Covid relief funds.

Who Really Runs the UK?

  • Narayana Kocherlakota echoes The Blind Spot’s sentiments on the Truss affair and argues the markets didn’t oust Truss, the Bank of England did. “The way the UK government fell should worry all who support democracy.”

    We’ve said it before, we’ll say it again. How is it that Andrew Bailey isn’t facing more scrutiny for the BoE’s disastrous record on everything since he took over?

Financial Obfuscation:

  • Russian oligarchs obscure their wealth through secretive Isle of Man network.Britain sheltering oligarchs? Who knew!

From the “Fake News” zone:

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