Week 16: Lithium, New Collar, Bubbles

Briefing: Lithium prices have spiked dramatically in the past year. | The presence of New Collar Workers is a positive sign that our work culture is adapting to allow for upward mobility. | Signs of bubbles in venture capital are also a sign that we are hard at work solving complex problems.

Lithium Batteries

The price of Lithium provides us with a bit of context on the state of our global supply chain. Lithium is the key element in modern battery technology. In 2016, prior to EV (electric vehicle) mass adoption, the primary use of lithium batteries was in cell phones that require just a few grams of lithium each. By comparison, one Tesla battery uses roughly 22 lbs of lithium within 900 lbs of batteries. The obvious upcoming need for lithium led to overproduction which led to prices falling 66% from their peak in 2018 to the low at the end of 2020 (16 months ago). Since then, prices have skyrocketed, averaging growth of 12% per month for a 280% gain and astronomical highs, much as we’ve seen in just about every commodity market.

Supply chains are complex and politically sensitive systems. Fortunately, we don’t have a supply problem because lithium is not a scarce element, quite the opposite. We have a production problem that can be solved when capitalist free markets are able to function properly (without political or covid-related interference). Similarly, we don’t have a timber/lumber supply problem because timber is not scarce. With commodity prices remaining at extreme highs, the incentives are there for new and existing players to ramp up production to capitalize on high prices. A significant positive surprise for inflation and equity markets will be coming once supply chains sort themselves out and prices normalize.

New Collar Workers

Years ago, Google, Apple, IBM, and many other technology companies made headlines for their leadership in dropping four-year college degree requirements. While formal education has many apparent benefits, the cost, debt, and time required for a four-year degree are too slow to help build relevant skills to match employer demand. There has never been a better time for self-starters to learn relevant skills via inexpensive and easily accessible resources.

To meet hiring demand, software companies like Okta started providing on-the-job training to new hires from non-traditional backgrounds. The wave of people making the leap from low-wage jobs to entry-level technology jobs (with much better pay) has been dubbed “New Collar Workers.”

Increasing costs of living have made low wages unsustainable for most. Strong incentives are now at play, pushing software and automation to replace as many low-wage positions as possible. The “New Collar” wave is a healthy development. It puts pressure on universities to redesign their outmoded offerings and paves a pathway to better opportunities for a whole new group of people.

Bubbles

The latest global count of unicorn companies (private companies valued north of $1B+) is 1,087, with a cumulative valuation of $3.6 trillion. Over the last ten years, many experienced investors in Silicon Valley and Wall St have repeatedly called this growth in unicorn startups an unsustainable bubble. While they were right a tiny fraction of the time, this desire to call out bubbles misses the point.

Another interpretation of frothy or wasteful venture capital allocation is that it’s a sign that the capitalist machine is hard at work solving challenging but necessary problems. Progress with climate tech, biotech, health care, space, robotics, automation, financial technology (including crypto, which is just highly politicized fintech), and AI require lots of capital and a high tolerance for failure. More money chasing a market often signals that the eventual solution will be worth it.

It’s intellectually satisfying to poke holes and predict signs of irrationality, but that exercise distracts from the bigger picture. As we seek to solve more challenging problems in a complex world, we will likely see even more unicorns and even frothier conditions. The good news is we will also likely see more surprising solutions to previously “impossible” problems.