The next big thing

As traditional businesses adapt…


… the digital age continuously advances.

It was already happening before the virus – VR headsets, wireless earbuds, wearable devices – all steps in the direction of technology-human symbiosis. These popular products are still early and primitive in application, but the course is set. Outside the mainstream, in specialized medicine for instance, it’s been happening for years (e.g., pacemakers, other implants and monitoring devices, artificial limbs).

It’s hard to say what causes what, if fantasy is inspired by events or vice versa, but the early speculative authors, like Wells and Verne – who among other things contemplated travels to the moon and explorations of the earth’s interior and oceans – or Huxley – who thought about the changes in society as technology advanced – were not wrong.

The integration of our body with technology has been speculated about by the storytellers for a while. Stephenson dealt with the digitized brain in his most recent novel, Pynchon created an increasingly mechanized person in V., and before all of that there was Frankenstein. The currently popular series Westworld almost seems like a culmination…

If nothing else, these tales have been projections of what the writers felt was underway. The artists feel these sorts of things, it seems, and in the case of symbiotics there is some mounting evidence and, as it now turns out, incentive.

Things happen fast and getting faster nowadays. Your edge is not the next big thing, but the one after.

Interpreting the networks (cont'd)

Economics has always been a network study in essence, directly or indirectly related to network science. Economies have always been boosted by network expansions or improvements, in geographical discovery, in regional commerce, in transport efficiency, in communication, and in the financial systems that have over time evolved.

There have been periods of network disruption, such as in times of war, though these were seen to be more truly network transformations once the dust had settled. It’s also possible that such historic periods were triggered by network breakages or changes, rather than the other way around. The subject is complex, books have been written.

In the case of the present-day pandemic, there is a purposeful and global effort underway to disrupt the economic network on multiple levels. The reasoning is fundamentally sound, and the blueprint is expected to be temporary. The effect, however, is not predictable, in the economic or the globally behavioral sense, which are connected.

Networks are like organisms, even (or especially) the massive digital kind, which grow or shrink or change or otherwise react quickly. These are all complex multi-dimensional bodies that like biological systems may or may not respond to outside interference in known ways. Medicines, which may or may not work, usually if not always come with side effects, sometimes if not usually unexpected.

Markets (commercial and financial) are network systems, which in the past decade have become dominated by underlying networks in the field. In commerce, we recognize these best as the Big 5 (Apple, Google, Microsoft, Amazon, Facebook), but there are many others – internationally, domestically, locally – that have either been influenced or inspired by, dependent on, reacting to, the same technological and behavioral patterns that have birthed these giants.

Networks don’t easily break, even when forced to, but they do evolve. The former is an absolute, the latter is relative. In financial markets, multiple networks intersect and overlap – the money flows, the companies, the governing bodies, the messaging – which makes the real-time analysis exponentially more difficult.

But not impossible…

At least it’s not impossible to start, to watch the giants and the systems and to look for early signs. Not necessarily financially, although perhaps that too, but directionally, which relates to finance in the long-term anyway.

Someday, you know, this war is going to end. Related reading from a different time: Interpreting the networks.

The hit and the wound

If the objective is to flatten the curve and do it quickly, which goes without saying, then Ackman is probably not wrong.

We’re economically at more or less a standstill anyway, and what’s compounding it is the uncertainty of duration and magnitude. A 30-day proactive sacrifice backed by the printing press, which is already printing as it should be and probably not enough, could in the longer run save the economy from worse.

It isn’t only a question of numbers and amounts, it’s also the popular attitude. A quicker and decisive action, even if short-term painful and imperfect, would do a lot to lift the social, cultural, and psychological clouds, which could turn into lingering bad weather if it continues long, after the disturbances have passed.

The markets, which are (and impact) everyone, directly and indirectly, need a proven blueprint that is fast in order to rest easier, and eventually forget… if, at some point, later on, this should occur again.

The battle isn’t only biological and economic, but emotional, which relates. It could become the difference between a Black Swan and an overhang. The former can be hedged at many levels, or supported with a bridge, the latter is a deeper and more complex thing that keeps on spreading.

The S-curve and the epidemic

It’s been observed that over time networks grow along the shape of S-curves, where the flattening takes place when limits in network effects are reached. This is a phenomenon we’ve seen in the social networks, which often seek to boost the growth with new product introductions or, sometimes, by new network acquisition.

The desired outcome of such events isn’t only to increase the number of participants, or nodes, that are active in the system, but to increase the ways and reasons to engage, or ties between them. In combination, this should lead to greater network size and density, consisting oftentimes of more and bigger clusters. In commerce, this is a desirable result. In certain other cases, though, the better one would be its opposite.

Among the earliest research on networks and network behavior are studies about epidemics. In these cases, obviously, the objective is to stop, or at the very least slow down, the growth, arriving at the S-curve’s horizontal line more expeditiously, and hopefully at such a point before the numbers become large.

The quarantines and lockdowns are a way to cut the ties and isolate infected nodes and the surrounding clusters where the ties are strongest from the broader graph and weaker ties to nodes that haven’t been infected. The quarantines and lockdowns are not the only way, or not only quarantines and lockdowns literally.

The extra measures that are being taken – the travel bans, the work from home, the event cancellations – are precautionary steps to block network traffic and disrupt engagement where it’s most prone to happen. Another mechanism, a universal isolation in a sense, is the individual care being encouraged, such as the persistent cleanliness of hands, which is itself a way to reduce virus flow and disrupt links throughout the network.

I came across the video below on Brad Feld’s blog the other day, and strongly recommend it in its full 9-minute length. It illustrates, in simple terms, the math behind the epidemic network growth, and frames this post’s preamble in a quantifiable perspective.

Without spoiling any of the substance, the video concludes thus: “If people are sufficiently worried, then there’s a lot less to worry about.” I believe people are pretty worried, and this will ultimately reduce both the time and magnitude of the epidemic network growth. The architecture that brought Facebook and Twitter up, is the same to bring this other network down. Keep you hands clean, disengage.

The future bank and your portfolio

Stop me if you’ve heard this one before: It’s all about engagement.

That has been a recurring theme from time to time around this space, as notable examples always surface. Today’s installment: Square, which shares a CEO with Twitter, maybe not by happenstance.

Just as with Twitter’s features that get added, the suggested follows, the topics, the highlighted tweets you might have missed, the variety that shows up in your feed based on interests you didn’t know you had…

So also Square, initially of relevance to merchants as they process customer receipts; then customers amongst each other, to send, receive, and track financial interactions; then buyers and sellers of the networked currency, because all of these things relate; and finally, securities transactions, because the line between a purchase and investment isn’t always clear, and it’s all attention grabbing from assorted angles… not unlike your curated Twitter feed, which is your attention portfolio.

As with portfolios of stocks and other instruments, this works best when it’s diversified and you participate. The broker’s job is to facilitate the ways for you to do so. And if the brokerage is good at this, it’s rewarded as a business in assorted ways, directly or indirectly.

This has been the Wall Street business model, and the media business model, since the dawn of both. The future bank will be a media conglomerate, in fact it already is… another oft-repeated blurb ’round here.