Weekly Briefing No. 116 | A Rockstar for Modern Capitalism and Can Blockchain Humble Facebook?

Retro microphone on stage

Welcome to The FR’s 116th edition. Here’s what’s swirled around us this week:

  • Blackrock’s Larry Fink, modern capitalism’s rock star
  • A terrific blockchain explainer
  • Paying more attention to electricity; Fintech buyouts and “sweaty” deals
  • Cannabis cash woes; Cryptocurrencies for adults; Open source in finance
  • Videos & Podcasts of Note: What if air travel worked like health care? The market for kidneys; Meltdown and Spectre bugs

A $6 trillion microphone.

“Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.” That’s a passage from a letter to CEOs this week from Blackrock’s Larry Fink. When we canvassed our network for their take, the reactions varied. Start-up colleagues such as Acorns co-founder Jeff Cruttenden supported Fink’s letter and expressed enthusiasm for the role that technology can play in giving shareholders more say in the companies they own. But some Wall Street contacts took a dimmer view. One venerable ex-pension fund CIO wouldn’t dignify the letter with a response. Others doubted Fink’s sincerity or assailed his gall. Their view: Who died and made Fink king? One PM directed us to this harsh piece by Bloomberg’s Matt Levine.


We understand why pros are skeptical about a sharp-elbowed hedge fund like Jana Partners teaming up with rock star Sting and others (i.e., CalSTRS, Sister Patricia Daly) to promote sustainable investing (although nobody should mess with the awesome Daly). But Fink? Flouting staid thinking and making gutsy moves (and acquisitions) is how he ascended the asset management world. He knows that while some public companies say they care about their communities and transparency, they care more about the quarter. He also understands that our retirement system is broken and that younger generations aren’t digging the kind of capitalism that leads to massive student loan indebtedness and seated passengers being dragged off airplanes. Finally, he’s a guy who isn’t looking to the government for fixes. Instead, he’s rocking his $6 trillion microphone and his right as a free market participant to assert that business legitimacy rests on long-term thinking and trust. If you don’t like his message and you own a Blackrock fund, you can tell him to go kiss your asset (i.e., withdraw your money). But we don’t think many people will

Can blockchain humble Facebook?

Technology author Steven Johnson posed that question (among others) in a great new blockchain explainer. While he acknowledges the “veritable goon squad of charlatans, false prophets and mercenaries” who have hijacked the concept of trustless networks, Johnson points to the hope that open protocols ultimately will address today’s reality that one company (Facebook), controlled by one person (Mark Zuckerberg), owns the data that defines social identity for two billion people, or 26% of the world’s inhabitants. Government intervention, he says, isn’t the answer. Instead, he points to a concept in which value is created not through a shareholder equity model but through improving a distributed database. For example, in a new blockchain-based identity standard, the contributors of content (i.e., users) would receive economic incentives, which today find their way into the pockets of  “information monopolies” like Facebook via ad revenues. And in the wake of Facebook’s recent decision to pull the rug out from under publishers, the idea of reducing Facebook’s power should sound even better to some people.

Let me “AlphaSense” that.

Sponsored by AlphaSense

Do professional traders obtain stock prices from watching television? Of course not. But The FR team used to be counted among the financial professionals who used Google or other platforms for research. Then we tried AlphaSense and quickly realized the benefits of using a search tool that’s purpose-built for financial professionals. Whether it’s digging for that one nugget of information in a company filing or scanning the latest news about a start-up, we rely on the intelligent search in AlphaSense to get the right information in real time. It’s our favorite search tool, and it’s free for two weeks.

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IN BRIEF

Innovators: Pay more attention to electricity.

Electricity demand, volatility and power distribution aren’t topics that get much billing at mainstream tech conferences. But if you believe, as we do, that electric cars and cryptomining will continue to muscle their way into the electricity demand equation over time, check out a great two-part white paper published by longtime contributor Jimmie Lenz of Financial Risk Group. Topics covered in the white paper are especially timely now, given the recent bid by Canada to become the world’s new Bitcoin mining mecca. We love Canadians and respect the loony kilowatt pricing utilities like Hydro-Quebec and Manitoba Hydro can offer. Still, we’d like to see more places in the US get into the act, especially with green mining solutions, now that China seems poised to curb domestic mining activities.

Buyouts, acquisitions, financings and “sweaty” deals all happened.

Quite a few notable deals were announced this week. They include the buyout of the prepaid card provider Blackhawk, Houlihan Lokey’s acquisition of data and analytics firm Quayle Munro, the hefty $75 million Series B for blockchain security company Ledger, Varo Money’s $45 billion Series B to fuel its national bank aspirations and the $5.7 million seed round for Sweatcoin. Yes, you guessed it, the company rewards users with sweatcoins for exercising. We’re also taking special note of Visible Alpha, which took in $38 million courtesy of Goldman, Wells Fargo, Banco Santander, Macquarie and other firms. Putting a value on sell-side research and keeping track of the calls, meetings and notes that cross back and forth between the buy- and sell-sides is a big market with room for a few players. And with their investment, Visible Alpha’s backers clearly agree that there’s an opportunity in helping equity departments better navigate a MiFID II world.  

A California cannabis cash conundrum.

Leave it to marijuana to unify California politicians Lou Correa, Barbara Lee and Dana Rohrabacher. But while it’s nice to see their shared opposition to Attorney General Sessions’ retraction of the Cole Memo, the reality is that from a banking perspective, they have a problem. This week, attorneys general from 19 states and territories wrote to Congress seeking a safe harbor for depository institutions that want to provide banking services in pot-legal states. But this is not likely going to happen as long as Sessions is Attorney General. He may have recused himself from the Russia investigation, but when it comes to casting a dark cloud over cannabis, he’s a veritable Chuck Rhoades. This means that a cash-driven cannabis economy looks to be a problem for the foreseeable future. However, the news isn’t all bad. As Yoni Meyer, a partner at Casa Verde Capital, told us, “We are assessing a number of innovative technology solutions that could help address this concern in the interim period.” We’ll keep an eye out for them.

Cryptocurrency for adults.

It can be hard to find thoughtful analysis of cryptocurrencies amidst the tabloid coverage. A few pieces that we’d recommend include a guest opinion post by Anurag Wakhlu of Dassault Systèmes, who makes an interesting comparison between blockchain and volatility, which is now viewed as an asset class thanks to VIX futures. Also, check out this set of points disguised as questions posed by the SEC regarding Bitcoin ETFs. Finally, we liked the St. Louis Fed’s “short” introduction to the world of cryptocurrencies below. It’s actually not-so-short, but it is helpful.

Open source in financial services is growing.

“We now have a large emphasis on using and especially participating in and contributing to and creating open source.” That’s a quote from Goldman’s CFO, Marty Chavez, who led the firm’s Q4 earnings call this week and utilized a follow-up question from Brennan Hawken of UBS to promote open source software development. Historically, financial institutions have generally adopted a proprietary mindset. But today, with everyone from the Pentagon to New York magazine adopting an open source mentality, the financial world seems to be catching up (See Quorum and the Plexus Project). For those interested in learning more about how open source can work in financial services, we’d suggest you check out this monthly Meetup hosted by Symphony Software Foundation and TTM Advisors. We’d also recommend the non-technical primer below.

VIDEOS & PODCASTS OF NOTE:

Here’s a terrific video sourced by Caitlin Lenz that asks the question,“What if air travel worked like health care?” It will make you laugh and depress you. We also stumbled onto two podcasts that we felt compelled to share. One is a Freakonomics rebroadcast on Al Roth, a one-time high school dropout who won the Nobel Prize in Economics for his work on designing markets to address “real-world” problems. One such problem he helped tackle: the former inefficiencies associated with kidney transplant donations. As the podcast explains, Roth’s work has saved lives. The second comes from Ben Thompson’s exponent podcast, which examines the Meltdown and Spectre bugs and their roots in speculative execution.

QUOTE OF THE WEEK

“Burning fevers flee no swifter from your body if you toss under figured counterpanes and coverlets of crimson than if you must lie in rude homespun.”

~ Titus Lucretius Carus