The ascension of cryptoassets exposes an inherent weakness of the current financial system — the feedforward dynamic between marginal price change of assets and the size of the total balance sheet in the financial system.
In financial systems that rely on mark-to-market pricing of assets on balance sheets, even a small rise in marginal price of an asset results in a large expansion of the aggregate balance sheet (i.e. paper gains). That expanding balance sheet serves as increasing collateral for potential leverage and as demand capacity for other assets (seeking additional returns, safety, diversification, rebalancing, wealth effect, etc.), which represents potential upward pressure on the marginal price of other assets (or itself).
Deoxyribonucleic acid (DNA) is a blockchain, selected through competition among energy-expending participants. It reflects a history of biologic transactions without the burden of recording its entire past. It has done rather well over time.
Fear is contagious. Natural selection has wired us to sense fear in our surroundings and make it our own. Zebras might not get ulcers from chronic stress but those that fail to activate their acute stress response when others around them are stressed are more likely to miss cues of threat and be consumed by a predator. Absorbing secondhand stress from others is a survival instinct—an adaptation shaped by prehistoric environments to promote evolutionary fitness.
However, our culture is evolving faster than our ability to biologically evolve. Too often, we helplessly rubberneck trainwreck events—often sensationalized by media for attracting attention and profit—despite their remote connection to our personal survival. For example, fear of the Ebola virus in recent weeks has become more viral than the virus itself. In the modern technology age where fear memes can spread around the globe near-instantly, our tendency to absorb secondhand stress from our ubiquitous, 24/7 media culture to activate our own stress response can produce maladaptive responses that are out of proportion to the actual threat.
You are probably aware of the concept of second-hand smoke, which increases the risk of disease and death. You should probably be aware of another deadly scourge: second-hand stress.
Natural selection has wired us to sense the stress of others and make it our own. If you are a gazelle and you don’t freak out when others around you do, then you might be the one about to be consumed by a predator you haven’t seen yet. Animals detect the stress of others through various sensory signals such as alarm calls, olfactory cues, or visual behaviors. Plants detect distress signals of others in the form of ethylene gas that activates their own stress response (fittingly, second-hand smoke contains ethylene). The ability to detect second-hand stress is a survival instinct that can promote evolutionary fitness.
The first Keynote: “Hiding in Plain Sight – Massive Trends Missed by the Masses”, was given by Dr. Joon Yun, a renowned investor and Managing Partner and President of Palo Alto Investors, LLC, a hedge fund founded in 1989 with over $1 billion in assets under management. The audience was captured by his talk on e.g. aging and the ability to remain stable or remaining the same. “When we are young for instance we can be rebound from a bad night’s sleep quickly, when we are old, it can take days to recover. When we are young, our eyes adjust to changing focal length, when we are old, the focus never quite rebalances“, said Yun. The original “health system” is our inborn, adaptive homeostatic capacity, endowed by nature and shaped by evolution. Once humans reach reproductive senescence by their mid-40s, however, a progressive erosion of innate homeostatic capacity begins, manifesting in the panoply of aging diseases. Our proposal for 21st-century healthcare is a paradigmatic revolution—restoring homeostatic capacity instead of restoring homeostasis—as a way to end aging. If we can put homeostatic capacity, and thus health, back in the body, healthcare costs could contract dramatically. The feed-forward relationship between health innovation and increasing future consumption—a vicious cycle that threatens aging economies everywhere including Europe and the United States—would finally be decoupled. Median lifespan could telescope to a number of years that might have once seemed unimaginable. Human capacity would finally be fully unleashed.
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Stewardship is defined as the responsibility to shepherd and safeguard the interests of others. Many of us are in positions of stewardship on behalf of others in public corporations, private enterprises, and charitable organizations. Warren Buffett, perhaps the most widely followed business leader of our time, speaks often of the importance of stewardship in business. It is striking, then, to see the dearth of courses discussing the concept of stewardship at top American business schools.
In the online course catalogs of the top five MBA programs in the America (as recently ranked by US News and World Report), “stewardship” is nowhere to be found in any course title. To put this into context, each of these schools offers at least five classes with the word “leadership” in the title. In the detailed descriptions of courses offered at Stanford’s Graduate School of Business, tied for #1 in the same report, the word “leadership” appears 108 times. The word “stewardship” is not mentioned once. The closest mention of the word appears in the context of how to steward yourself in a course entitled “Leading Your Life.”
Hiding In Plain Sight is a collection of essays that I have written on investing, healthcare, and life.
A Little Experiment
For the sake of experiment, read the next sentence once, while counting the number of “f”s that you see.
“Five-winged flies are the result of years of scientific study combined with the experience of many years.”
Most likely, you counted an “f” in each of the more vibrant words of the sentence: “five,” “flies” and “scientific.” Most people only see these three “f”s, when in fact there are six. The other “f”s are hidden in the unassuming preposition “of”. Your mind probably skipped over each “of” because it processed these words without absorbing the raw information of the letters that composed them.
We’ve all heard the thesis on real estate investing: “They’re not making any more land.” It turns out that before too long we may not be making enough people either.
Global population has been expanding since antiquity, interrupted by wars, disasters, pandemics, and famine. Malthusian predictions of overpopulation, unsustainability, and resource depletion have also been a part of conventional wisdom since antiquity and remain popular today (see Paul Gilding’s “The Earth is Full” TED talk). It is, after all, a common trait of the human mind to assume that the past is an accurate predictor of the future.
Human endeavor creates value. Healthier people endeavor more. Thus, health is a creator of value, of prosperity. The converse is also true. Wealthier societies demand more healthcare. When life is grand, people want to live longer and they want to maintain healthy bodies. Therefore, health and wealth form a virtuous, feed-forward cycle.
The immune system defends hosts against internal and external biologic threats. It also records an antigenic map of the environment such that it can appropriately respond to stimuli as benign or threatening.
A lesser-known function of the immune system may be to sample the microbiome for potentially beneficial traits it can add to the host inventory. Rather than executing wholesale destruction of pathogens, the host can benefit by domesticating invading organisms or parts thereof. The function can be summed in the word “xenovation”, innovation achieved through the selection and integration of foreign traits. Implications for biologic evolution, meme evolution, and computing evolution are discussed.
Components of pathogens can be processed and rendered benign or useful through various mechanisms. A historical example of this phenomenon is the domestication of one prokaryote (or at least its energetic machinery) by another to form a eukaryote. A current example is the processing of pathogen antigens for surface redisplay to other players in the immune system. The ability to protect against reinfection is a trait acquired via the pathogen. It is intuitively appealing to speculate that the immune system is in a perpetual state of exploration for innovative traits through domestication.
The exact mechanisms by which immune cells domesticate microbial traits remain to be elucidated. How sequences associated with those traits might end up in the germline also remains to be investigated.