Weekly Briefing №89 | Global Macro Malaise, Litecoin’s Rise, Disrupting Connecticut
Macro fund managers need to rip up their old playbooks.
It’s one thing when today’s seemingly contradictory economic signals bewilder fancy economists and central bankers. By the very nature of their jobs, they are insulated from the realities confronted by businesses and average consumers. But when global macro hedge fund managers are dumbfounded by the changing relationships among key measures of the economy, we’re left scratching our heads. Elite PMs are supposed to be in the skepticism business. Rather than trying to fix their old models, they should decamp to co-working sites (clearly, some investors believe that the WeWork model represents the future of work around the globe) or coffee shops in American cities that double as co-working sites to find out what’s really going on underneath the top-line economic data they analyze. Similarly, they should pay Lyft drivers to talk to them during their off hours, skype with a talented Philippines-based website designer on Upwork charging $10 per hour and pump debt-soaked Millennials for details on why they will soon drop $1,200 for the hot mess that will be the iPhone 8. They should also give thought to the role played by intellectual property that goes largely unaccounted for on corporate balance sheets, says Jeremy Josse, and last but not least, they should use a bigger chunk of their fees to secure alt data and fintech tools before Point72 and a few other big names hoover up all the best innovations. Because in our brave new (and highly connected) economic world, bytes have overtaken beers, and new trading models, not tweaked old ones, are needed for success.
Shining a light on Litecoin.
In some ways, 2017 is turning out to be the year of Litecoin. Even though Bitcoin, Ethereum and various tokens continue to generate more headlines in the mainstream business and financial press, little old Litecoin continues to be the only major digital currency to weather the cryptochaos storm that has rolled in over the last month, as politics, SegWit/SegWit2x, crowdsale hype and flash crashes have triggered waves of volatility. So what’s to account for Litecoin’s ability to buck the trend? As in most things related to cryptocurrencies, it’s tough to be certain about anything. However, the main panic driver appears to be the upcoming decision over whether the Bitcoin protocol is soft-forked or hard-forked. This so-called Bitcoin civil war has divided the community into rival camps, each claiming that its solution is the only real way to deal with a Bitcoin traffic jam of I-405 proportions. Litecoin, meanwhile, has benefited from the added support it has received from trading platforms and the fact that its creator, Charlie Lee, quit his job at Coinbase to focus full-time on Litecoin. The net net: Litecoin continues to perform like the closest thing to a defensive stock in a market characterized by chaos.
Connecticut needs to self-disrupt.
“Driving to work, sailing on Long Island Sound, puttering around a two-acre yard and golfing at local country clubs.” That’s the 1974 pitch the Nutmeg State used to lure GE to Fairfield. But in recent years, that pitch hasn’t made many birdies. For example, GE announced last year that it would relocate to Boston. And last month, Aetna followed suit and announced it was moving its HQ to New York City. Are companies fleeing Connecticut because of the high cost of doing business there? In some cases, perhaps, but New York and Boston don’t fit that explanation. Connecticut’s bigger problem is that entrepreneurial companies aren’t attracted to its old value proposition. So while we think the attempt by Upward Hartford (See below) to inject new energy into the state’s insurance hub is a good thing, it’s a drop in the bucket compared to what’s needed to revitalize the state’s financial services and insurance communities. For that, it needs 10x initiatives like Upward Hartford, and it needs them soon in order to attract/retain the talent needed to compete with regional rivals that have sharper pitches for big and small companies alike. Still, it remains the wealthiest state in the nation and it’s loaded with great universities. So what’s the hold-up Connecticut?
There’s no ignoring the debate raging over AI’s potential impact in financial services. A common theme: Financial services professionals need to fear the specter of AI (insert picture of Terminator-looking guy) because most jobs are going to be automated in the near future. Sounds lovely, right? Here’s our beef with that narrative. First, as Tom Eck of IBM put it, “AI is an elitist sport” with only a “few people who know how to practice it.” Second, when the day comes when AI is in position to be integrated into various workflows at scale (and that day is coming thanks to Darktrace, Deep Instinct and others), it will obviate the need for humans in many roles. However, there still will be plenty of other jobs that can’t be automated anytime soon. To underscore this point, we liked a new McKinsey piece (See below) that urges CEOs to create a workforce automation agenda that divides tasks that can be done through AI from those that will remain in human hands.
Smiley faces are serious business in payments.
Social payment apps are nothing new. From Uber’s Split Fare feature to Flypay, P2P payment apps are looking to solve a massive pain point: the social angst that often comes with asking people to pay back money they owe you. While there have been some partial answers to this problem in the form of Square Cash and Dwolla, they seem to be lacking the secret ingredient: Emojis. That’s why, despite increasing competition, we are confident that Venmo’s mastery of the world’s fastest-growing language will help to ensure its strong position in processing payments for the time being. And while it’s unlikely that Venmo’s emoji-infused social platform will be used by Fortune 500 CFOs any time soon, we just don’t see any other competitor right now who can help you say “Give me back that money for the beers and pizza right now” as nicely as Venmo.
Arbing the friendly skies?
A great airline financial innovation story hit this week as United Airlines sought to “quietly” roll out a new program to deal with overbooking. Essentially, United partnered with an Atlanta tech company, Volantio, to test a kind of voluntary repo agreement in which the airline sells a ticket for a seat as normal. But if the value of the seat rises, United will then offer the customer a voucher for $250 to repurchase the ticket. If accepted, United will then look to sell that repurchased ticket to a desperate business traveler for much more money. We’re doubtful that this new program can prevent future Bumpgates, but we’ll give the airline credit for hooking up with a savvy start-up to at least try something innovative. Still, it had best be careful to ensure that passengers, not just United, extract real benefit from the trade. Repos are hard to grasp, and this program could easily be construed as a new way to put the airline’s interests above its customers if it’s not managed with emotional intelligence, which isn’t exactly United’s core expertise.
COMPANY OF NOTE
Imagine what would happen if you unexpectedly met your maker. If your online habits are typical, your loved ones would have to identify a myriad of accounts, insurance policies, wills and other important records that only you know how and where to access in their entirety. The added angst of searching for records could be substantial at the very time when your loved ones would want to grieve. That’s why we’re highlighting Everplans, a New York start-up that has built a fully encrypted, cloud-based solution on AWS to archive all the important stuff people need to include in life and legacy planning. Founded by experienced entrepreneurs Abby Schneiderman and Adam Seifer, the company distributes its solution directly to consumers and through financial advisors, wealth managers, life insurance providers and employers. The latter approach has resonated with many leading advisors and financial services firms who value the opportunity to better serve their clients and enhance their dialogue with their clients’ heirs. Everplans has also formed a number of key relationships in the industry, including its recently announced strategic partnership with SEI. Completing the company’s offering is a trove of free resources on the site, including checklists for estate planning, advance directive forms and organ donation registries. “Everplans solves for the single most important part of life and family planning that people often overlook,” said Schneiderman. “This is why we have developed a platform that individuals and financial professionals alike can use to ease a tedious but important process.”
Quote of the Week
“Get your facts first, then you can distort them as you please.”
— Mark Twain