Client Portals

Week 3: Tech Empire Building, Auto Challenges and Bill Miller on Bitcoin4 min read

Jan 19, 2022 - Max Osbon ( 6 mins to read)

Briefing: Markets are negatively surprised by faster than expected Fed tightening and a worse than predicted Omicron variant. | Meta and Microsoft are aggressively investing in their future vision of the metaverse. | Cars are turning into highly complicated rolling computers facing many production challenges. Tesla and the semiconductor industry as a whole are in a position of strength. | Bill Miller has half his portfolio in Bitcoin due to the nature of its limited supply and increasing demand.

A Quick Note On Markets

Equity and fixed income markets are off to a weak start in 2022 due to two surprises: The Federal Reserve is raising rates and slowing their bond purchase program faster than expected, and Omicron has created a 2nd supply chain shock with many workers calling in sick.

Markets are forward-looking and often overshoot to the upside and the downside. Markets are also not designed to increase in perpetuity without corrections, fear or uncertainty. A certain level of persistent market fear is a big part of what creates the return opportunity.

This sell-off will end, just like others before it. In the meantime, we will have to wait for earnings season to see proof that high-growth innovative companies can still deliver on their growth expectations.

To set expectations, this market fear could take a while to subside as the market is mostly reacting to short-term news today. Many relatively high valuations have reset, and many of the leading growth companies now have valuations lower than in their pre-COVID era. There are many reasons to be optimistic, especially when you look under the hood at the leading companies and their incredible capabilities.

Tech Empire Building Continues

This week, the FT reported a series of patents filed and granted to Meta (Facebook) related to metaverse technology, giving us a peek into their plans. These patents show that Meta plans to collect biometric information like body posture, pupil movements, nose scrunching, and so on. This biometric information can be used in virtual shopping environments to track, record and influence shopping behavior. Meta’s headset Oculus is relatively inexpensive ($299) and has doubled its sales each year over the last three years. Zuckerberg has committed $10B per year towards metaverse development.

Separately, Microsoft announced plans to acquire Activision Blizzard for $70 billion, adding to its vision of the metaverse. CEO Satya Nadella said, “Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms.” This is the largest tech merger to date.

Microsoft and Meta are aggressively building new ways to develop and monetize virtual worlds using their deep pockets and significant talent pool.

Today’s cars are more like computers

An industry report by semiconductor engineering in the automotive industry sheds light on how cars have become more like rolling computers. In many ways, the leading car designs today don’t look anything like traditional cars, especially the electric versions. The top concerns for manufacturers are the semiconductor chip shortage and new security challenges. For example, if a particular car model can be hacked, then you can conceivably hack every one of those models at once.

Another challenge is standardization. Modern cars are designed to download over-the-air updates and communicate with each other and surrounding infrastructure. It’s challenging to develop a set of standards while the entire car ecosystem is being redesigned from the ground up by a diverse set of competing players.

Tesla has a clear advantage given its decade-long head start. Whether it’s cars, phones, or home security systems, there is persistent semiconductor demand to turn nearly everything in our lives into a computerized version. A prime example of this growth is that TSM, the largest semi manufacturer in the world, increased their 2022 capital expenditures to $40-$44 billion, up from $30 billion in 2021, to increase their production capacity by 47%. Many reasons to be optimistic. It’s also possible to invest in the entire semiconductor industry through an ETF.

Bill Miller on Bitcoin

I enjoyed this video interview of Bill Miller. Miller is a 40 year veteran of the investment industry and a student of the value investing classics. He revealed that his portfolio today is roughly 50% Bitcoin and 50% Amazon with a handful of other assets. His main bullish point is, “Bitcoin is the only economic entity where the supply is unaffected by the demand.” He expects demand to increase as people view it as an asset capable of existing outside of the control of their local government. For reference, Nic Carter has a great chart of the changing Bitcoin narratives since inception.

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