Deep Dive: Understanding Federal Agencies

When Elon, RFK Jr., and Vivek talk about an overgrown and ineffective federal bureaucracy, they are referring to the 400+ federal agencies that form the operational backbone of the U.S. federal government.

Why have federal agencies become a lightning rod for criticism?

First, federal agencies are the largest employer in the U.S., employing more civil servants than both Walmart and Amazon. They also issue thousands of regulations annually, which far exceeds the number of laws passed by Congress during its biennial term.

Given that these regulations touch nearly every aspect of American life today and the vast majority of federal employees within the agencies are unelected, there have been calls to reform the federal government's agency system. In order to do that, we need to look at the problem from first principles.

What I Read This Week…

Scientists at Harvard Medical School have developed a versatile, ChatGPT-like AI model called CHIEF capable of performing various diagnostic tasks across multiple forms of cancer.

What makes CHIEF different from current AI approaches to cancer diagnosis?

CHIEF stands out by performing a wide range of tasks across 19 cancer types, maintaining consistent performance regardless of cell sample collection or digitization methods. The model detects cancer cells, predicts tumor origins, forecasts patient survival, and identifies treatment-related genetic patterns, achieving 94% accuracy in cancer detection across 11 of the 19 cancer types.

CHIEF was pretrained on 44 terabytes of high-resolution pathology data and validated using 19,491 images from 32 independent sets across 24 international hospitals and cohorts.

Through more efficient and accurate cancer evaluations, CHIEF could enable clinicians to better diagnose and treat cancer patients. Four college students from the University of Toronto developed an anti-drone technology that outperformed systems from major defense companies like Boeing in a competition hosted by the Canadian military.

How did they do it?

The students built a device that emits high-frequency sound waves to disrupt drones in flight. It works by exploiting materials' resonant frequencies, causing drone components to vibrate and malfunction, similar to how a powerful sound can shatter a wine glass.

To create this device, the team first experimented with car speakers in a living room, testing various sound frequencies on drone parts. They then upgraded to more powerful speakers that could produce ultrasound waves beyond human hearing. Through repeated backyard tests, they refined their system to destabilize drones' navigation systems from 50 meters away, making them unstable, veer off course, or crash.

This final prototype cost the students about $17,000 to develop.

Deep Dive: Is India the Next Economic Giant?

Around 20 years ago, China experienced a period of unprecedented economic growth and technological advancement. I watched many of my friends invest early in China and achieve remarkable success.

Yet, I didn't make a single investment then. Why?

I didn't feel like I understood China. I couldn't speak the language, I didn't grasp the political landscape, and I felt like an outsider looking in.

When I look at India, I feel entirely different about it. India's democratic ideals align well with those of the United States. Many Indians speak English, which removes the language barrier, and there are favorable conditions for American entrepreneurs and investors to create successful businesses.

Around 2016, when India launched UPI (digital payment system), a few of my friends and I made some bets then. Even though UPI was a huge success, in hindsight, 2016 was too early to invest in India and my bets didn’t pay off. Even though we saw a wave of successful startups like Flipkart and Zomato emerge during that time, in many ways, India's startup ecosystem was still nascent. Today, India feels very different from how it was in 2016. Even though some of the same fundamental characteristics remain (e.g., the world's largest working-age population, many talented and educated individuals), the tectonic plates of India's economy have shifted significantly in the past eight years, and many of the long-standing obstacles that were holding back India's economic growth have been addressed.

All this to say, through my own experience of investing in India, I realized that focusing on narrow aspects (e.g., momentum of investment in Indian startups) is necessary but insufficient. It is understanding how the structural pieces of India’s economy fit together that offers the clearest understanding of where India’s economy is today and if it’s the next economic giant.

Many articles have been written about India’s economic potential, but every article I came across, I felt that it was missing this foundational and multi-dimensional approach.

This deep dive builds a foundational understanding of India, from the lens of its economic potential. We will discuss India’s history, governance, demographic profile, technology sector, financial sector, infrastructure, and geopolitical position, to help you understand where India is in its economic development.

We assume the reader has no prior knowledge of India. One of our goals for this deep dive is to come at the subject with the right entry point, so you can develop an enduring perspective that you can build upon over time. If you don’t know very much about India, one sign we’ve done our job is that if, after reading this deep dive, the subject of India should feel less impenetrable (like China was for me), so you have the right footing to read news about India, meaningfully participate in discussions about India, and form a nuanced worldview.

Later, we will do more deep dives on India that branch out and dive into specific topics, with this one as the base.

One thing I want to say is that my team and I spend a lot of time and energy to create an enjoyable reading experience. Our deep dives are designed to be read in one go, like a flip book. If we’ve done our job well, after 20-30 minutes of reading, you should be able to form a clear picture of where India stands in terms of its economic potential.

We will be publishing our deep dive on India's economy next week, covering everything from how India's education system works to how the country's infrastructure development varies across different regions.

Like our previous deep dives, we will build from the ground up, assuming no prior knowledge.

Here’s what we’ll cover:

What is the current state of India's economy? How does it rank globally in terms of GDP, growth rate, and other macroeconomic indicators? What are the key sectors driving India's economy? How is India's education system preparing its youth for the future job market? How has India's IT sector evolved and what is its contribution to the economy? How is the startup ecosystem in India contributing to economic growth and innovation?

What I Read This Week…

The “Magnificent 7” stocks have lost over $1.7 trillion in market capitalization in just two weeks, with Nvidia's stock price decreasing 7% in a single day.

What's going on?

Investors are reassessing the lofty valuations of the largest technology companies, driven by concerns over their large investments in AI and mixed Q2 earnings.

Macroeconomic indicators are pointing to a weakening economy. The latest jobs report revealed new unemployment claims at their highest level since last August, while manufacturing has contracted for the fourth consecutive month.

These signs of economic weakness are prompting investors to anticipate Federal Reserve interest rate cuts starting in September, with the 10-year Treasury yield dipping below 4% for the first time in six months. The United States is engaged in an increasingly complex battle to control the export of advanced AI chips to China, amid fears they could be used to enhance Chinese military capabilities.

Despite stringent export controls implemented since October 2022, a thriving underground market and creative corporate structures are allowing China to acquire them.

For example, in Shenzhen's bustling electronics markets, vendors openly offer Nvidia's most advanced chips, with some deals reportedly involving hundreds or even thousands of units.

One vendor claimed to have facilitated a $103 million shipment of over 2,000 advanced Nvidia chips from Hong Kong to mainland China.

We will be publishing our deep dive on biotech at the end of this month, covering everything from how gene editing works to how AI is accelerating drug discovery and development.

This month’s deep dive on biotech focuses specifically on human therapeutics.

We will do future deep dives on agricultural biotech (e.g. GMO crops) as well as industrial biotech (e.g. biofuels and biodegradable plastics).

Like our previous deep dives, we will build from the ground up, assuming no prior knowledge.

Here’s what we’ll cover:

What is biotech? How do biotech companies turn breakthrough research into new products and treatments? How do small molecules, biologics, gene therapies, and other biotechnologies differ in their approaches and applications? What are the stages of developing a new drug? Why are biotech companies generally higher-risk and more capital-intensive compared to other technology companies? Why are drug prices so high?

What I Read This Week…

The U.S. economy added 206,000 jobs in June 2024, exceeding expectations, but the unemployment rate rose to 4.1%, its highest level since November 2021.

What do these mixed signals mean for the Federal Reserve's interest rate policy?

The Federal Reserve's dual mandate requires it to promote maximum employment and price stability, so some see the unemployment rate increase as a factor that may lead to two potential rate cuts this year, with the first expected in September or November.

However, economists note that while the labor market is showing signs of moderation, it remains relatively resilient overall. The investment world is increasingly focused on geopolitical risks, with many financial firms hiring geopolitical advisors and former government officials to help navigate a more complex global landscape.

What's driving this trend?

Investors perceive a fundamental shift in the global landscape, where geopolitical factors are increasingly driving inflation, amplifying risks, and complicating investment decisions.

This marks a departure from recent decades, when globalization typically led to reduced prices and risk across markets.

Key concerns include US-China tensions, conflicts in Ukraine and the Middle East, and political instability in South American countries like Venezuela, Bolivia, and Ecuador.

What I Read This Week…

Nvidia's market capitalization recently passed the $3 trillion mark, surpassing Microsoft and Apple as the most valuable company in the United States. Nvidia now also accounts for 34.5% of the S&P 500's growth this year.

So what's the problem?

Nvidia’s growth is partly driven by speculation about the future potential of AI, as well as Nvidia’s central role in shaping that future.

However, if these optimistic projections do not materialize as investors anticipate and Nvidia's stock were to decline, it would lead to a significant drop in the S&P 500 as well. Anthropic released Claude 3.5 Sonnet this week, the first release in a forthcoming Claude 3.5 model family.

Notably, Claude 3.5 Sonnet excels in the Graduate-level Proficiency Question Answering (GPQA) assessment, which is designed to assess advanced academic understanding across various disciplines, testing complex reasoning and knowledge application typically associated with graduate-level education.

While the average PhD graduate scores 34% on this test and a specialized in-domain PhD scores around 65%, Claude 3.5 Sonnet has set a record with an impressive 67.2% score.

Deep Dive: Creator Economy - The Next Phase of Media

Every day, we make decisions about which products and services to consume. With countless options and categories to choose from, how do we end up selecting certain products over others?

More than $60T is spent annually by consumers on various products and services so this month’s deep dive focuses on the changing nature of how consumers are influenced.

In a world where we often lack the time or expertise to evaluate every option, the media initially drove consumption decisions by selling advertising about which products and services were best, most valuable, or most suitable.

To understand how media will drive consumption decisions in the future, we look to the past to investigate the underlying economic dynamics that have driven its evolution. Through our investigation, we uncovered four distinct phases of media: We are already seeing evidence of this today, as influencers like MrBeast and Kim Kardashian build massive consumer goods businesses on the back of their captive audiences.

But they aren’t the only ones. We end our deep dive with an analysis of Elon Musk, the world’s first Mega-Influencer, who has built several massive businesses by following the playbook we outline in the deck.

1/ Founders: If you have competing term sheets, what factors are important beyond price? Firm A has a lower valuation BUT a much better track record of realizing that value. Firm B has a history of paying up but fewer exits. Who do you choose? 🧵👇🏾 2/ Startup employees: Similarly, how do you weigh offers from two competing startups? Is there data hiding in plain sight that may help you decide whose equity will be worth more?

New data from @AkiliLabs clinical trial for teens 13-17yo with ADHD show that 2 out of 3 teens had meaningful clinical improvement in attentiveness (using an FDA-cleared test to measure attention deficit) and 1 in 4 teens tested into the normal range. All through a video game

https://twitter.com/AkiliLabs/status/1611036476636073985

These results are 3X better than Akili's clinical trial results for 8-12yos, which was their original FDA authorization

The two most important drivers of the next decade: the marginal cost of energy AND the marginal cost of compute will both go to zero.

What does this mean? Take one of the biggest technology leaps of 2023: ChatGPT. It takes 6,000kWh and $100K per day to run ChatGPT, per @tomgoldsteincs, not including the $1B MSFT spent to fund @OpenAI 

https://twitter.com/tomgoldsteincs/status/1600196981955100694?s=20&t=kXgZEifntqmVjULNbDlTSw

What I read this week... cnbc.com/2022/09/15/fig…

What I read this week... wsj.com/articles/kim-k…

What I read this week… batteries, heat waves, fast food wages wsj.com/articles/honda…

What I read this week... student debt, Japan stays nuclear, where do people live the longest wsj.com/articles/miami…

I’m proud to share that $DNAA has successfully completed its deal to bring @AkiliLabs public. I am investing $100M in @EddieMartucci & the Akili team to address the growing and worsening mental health crisis in the U.S. /1 Today there are limited options & access to treat the cognitive issues (memory/attention/etc) associated with diseases like depression, autism, ADHD.

Treatments like therapy & pills may help mood, but don’t target cognition - which can be just as debilitating to daily life /2

What I read this week... Third Point/Disney, California megastorm, record arrests at the border, and the story of Three Arrows Capital businesswire.com/news/home/2022…

What I read this week... the passing of a legend, the retirement of another, and the World Excel Championships wsj.com/articles/tom-a…

What I read this week… and thoughts on how Biden can turn around his presidency 👇🏾 We need @POTUS to shake up management before his board of directors (i.e. American voters) replaces him chamathreads.substack.com/p/what-i-read-…

In Nov-2021, after 11+ years, I began a process to sell my ownership in the @warriors. I sold an initial tranche in Dec-2021 and last week I sold my remaining stake to existing investors.

A few reflections as I close this chapter… Most people thought investing in sports franchises was a bad bet back in 2011. They were wrong. In addition to being a good investment, though, I also wanted to be one of the first minorities to own a piece of a prominent sports team.