Welcome to our 117th edition. On tap for this week:
- The World Technology and Economic Forum
- Stripe bids adieu to Bitcoin; Robinhood says bonjour
- Jimmie Lenz on ISAs; Amazon Go and air conditioning
- Deals and investments; Long-term care insurance woes
- Comings and Goings: SoFi’s new Krafty linebacker
- Company of Note: 280 Markets
Is Davos now a tech event?
When Klaus Schwab launched the World Economic Forum in the early 1970s, a gold ounce traded in the double digits, a woman often couldn’t get a credit card without her husband’s or father’s co-signature and US CPI began its march towards an eye-popping 12.3% (in 1974). This week, we thought about that economic history as we scanned the headlines coming out of the 48th annual Davos affair. And while we weren’t present, we took note of the powerful symbolism in the air. For example, all of the co-chairs of the typically male-dominated forum were accomplished women. Other meaningful gestures included the emergence of young leaders, like 40-year-old French President Emmanuel Macron, giving a dig to climate change skeptics. But as it related to the broader impact of technology and innovation on the global economy, the messaging was murkier. Several world leaders, for example, issued a vague call for global regulation of cryptocurrencies because, you know, bad people do bad things with Bitcoin. Meanwhile, global tech figures, perhaps in an effort to make bold Trump-like headlines, went to extremes, with Alibaba’s Jack Ma suggesting that AI could lead to World War III and Google’s Sundar Pichai saying AI is more profound than electricity or fire. The verdict on that last statement remains to be seen. But one thing seems clear: the technologies behind the so-called Fourth Industrial Revolution have invaded most serious discussions on macroeconomics and trade. And that means that Schwab may as well clarify his forum by calling a spade a spade with a tech-infused rebranding.
Robinhood, Stripe, 50 Cent and Marchetti’s constant.
On Thursday, Robinhood announced that it was introducing Bitcoin and Ethereum trading as part of its new Robinhood Crypto platform. But another big fintech is moving in the opposite direction. This week, Stripe told its customers that Bitcoin, which the company had integrated in 2015, would no longer be accepted after a wind-down period. The reasons include high transaction fees, long confirmation times and outsized price fluctuations. As a result, says Stripe, Bitcoin has “evolved” and has “become better suited to being an asset than being a medium of exchange.” We suspect rapper 50 Cent would agree, but for those on the fence over the Bitcoin scaling debate that lies at the heart of Bitcoin’s payments issues, consider what Cesare Marchetti and Yacov Zahav would say. The work of these academics contributed to the theory known as Marchetti's constant, which states that no matter how much highway capacity is expanded, commute times remain fairly constant. That’s because over time, a society adjusts to the new capacity and essentially keeps commute times (i.e., gridlock) constant.
Are income share agreements an answer to college tuition?
Last year, it was reported that nearly 40 US colleges and universities charged more than $65,000 per year. Around the same time, Vanguard predicted that private college tuition would exceed $120,000 per year in 18 years. Fast forward to a new study from the Brookings Institution indicating that the looming student loan default crisis will be worse than originally thought, as US student loan debt now totals $1.4 trillion and data suggests that 40% of borrowers who started college in 2004 will default on their loans. Unfortunately, Washington, which is having a hard time staying open for more than a few weeks at a time, has other priorities. That’s why we’re interested in private-sector innovation in general and ISAs (income share agreements) specifically. Our regular contributor, Jimmie Lenz of the Financial Risk Group, weighed in on this important topic in a terrific new opinion piece below.
Amazon will take it really slow with Go.
Relax, supermarket owners. The arrival of Amazon Go doesn’t mean that your stores are headed for the dustbin of history. For one thing, products sold on a weight basis don’t easily conform to Amazon Go’s technology. Plus, your stores are far bigger than the first 1,800-square-foot Go store in Seattle. Think of all the cameras Amazon will need to deploy its frictionless shopping experience in 45,000 square-foot venues. Where will Amazon get that kind of money? And finally, check out this 99 Percent Invisible podcast that traces the history of air conditioning, which was created in Brooklyn (where else?) in 1902. It took decades before chilled air technology entered American homes en masse. When it did, of course, AC transformed everything. But don’t worry. It’s not like the pace of innovation is increasing. Amazon will go slow for a few decades. In the meantime, just chill out.
Financial investments to double your money.
Cartoonist Kin Hubbard once said that the best way to double your money is to fold it over and put it in your pocket. Sadly, pockets are small, which means that financial firms have to resort to more conventional ways to build value. To wit, this week, JP Morgan announced US moves including a raise for 22,000 employees, hiring 4,000 people, expanding lending by $4 billion (not a big number), increasing charitable investments by 40% and opening 400 branches (a big number). Clearly, Jamie Dimon is feeling flush after the Trump tax cut. Also, ADP announced that it acquired WorkMarket, a workforce management solution to address the evolving nature of employment. Meanwhile, in insurtech, Hippo announced a $25 million Series B in its bid to reinvent homeowner’s insurance, and Nexar announced a $30 million Series B to further its mission of using AI to eliminate car crashes.
Can someone resurrect long-term care insurance?
This Wednesday's episode of the new podcast The Indicator did a nice job of highlighting the terrible shape of our nation’s long-term care insurance industry. How bad is the situation? How about bad enough to possibly break up GE? And with other major carriers withdrawing from the business as well, one could surmise that this quirky corner of the insurance industry doesn’t reek of opportunity. But we’re not convinced long-term care insurance needs to go. Perhaps it needs a universal catastrophic insurance program combined with newer approaches that are better integrated into a person’s broader financial plan. And clearly, more sophisticated models to better account for lifespans and the cost of care are necessary.
COMPANY OF NOTE
When it comes to providing advice on individual bonds, RIAs often find themselves at a disadvantage to institutional market participants. That’s because the trading desks and research providers that serve institutions are in a better position to add a level of insight and inventory that’s not easily accessible in the broader marketplace. That’s where 280 CapMarkets comes in. The two-year-old startup has fused a licensed broker-dealer with a cloud-based platform that seeks to provide RIAs with options beyond bond funds. Named for the interstate highway that connects San Francisco to Silicon Valley, the company officially launched its Bond Navigator marketplace this week. This offering enables advisors to discover and compare individual bonds that can be executed through the company’s trading desks. Although this platform is only available for tax-free securities at present, company co-founder and CEO Gurinder Ahluwalia told The FR’s Gregg Schoenberg that there’s more to come: “We plan to provide a full suite of securities offerings and set a new standard for transparency within the bond market,” he said. “That’s a tall order in the current fixed income environment, but we have the technology, trading and capital markets expertise to deliver a superior experience for the advisor.”
COMINGS AND GOINGS
This week, Anthony Noto, a former COO and CFO of Twitter, co-head of TMT banking at Goldman, CFO of the National Football League, tech research analyst and star linebacker at West Point, was named CEO of SoFi. But when it comes to reinvigorating SoFi, which remains a dominant player in marketplace lending securitization, Noto’s other career stop may come in surprisingly handy. That’s because SoFi plans on launching and/or boosting initiatives including SoFI Money, SoFi Wealth and its new career-coaching venture with Korn Ferry. All of these initiatives will rely in part on a careful bolstering of its brand. Plus, in Noto’s new role, he may find himself taking on former teammates with strong brand names, including Jack Dorsey’s Square and Goldman’s Marcus. To do that, Noto may want to recall the skills he learned earlier in his career as a brand manager at Kraft Foods.
QUOTE OF THE WEEK
“We must always take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormentor, never the tormented.”
~ Elie Wiesel