Moontower #91

Friends,

I recently listened to an interview about the role and future of college degrees. The guest had a quick-paced, ranty style.

I was surprised to learn it was Marc Andreessen.

Some highlights in my notes:

• The covert purpose of college
• The “sheepskin effect” and why you must get the piece of paper if you attend college
• The natural experiments upon us which are going to test theories about “what college is really good for”
• How universities are cartels and how it distorts the value proposition of college
• Should you go to college? (almost certainly yes)
• How to think about where to attend based on what you plan to study.
• How to signal your value without attending college
• What Andreessen looks for in hires and founders
• “The best career advice in the world” via Steve Martin
• “Show your work” careers and how the rules are changing for them
• Developments to watch in alt credentials

Related:

• Patrick Mackenzie’s thread of how you can approach a CEO. Very “show your work” energy in his ideas. (thread)
• “Burn your resume?” I noticed this company in the referenced in the thread. (crash.co)

The Money Angle

Prices Are More Than Expectations

This week I came across this tweet by @NewRiverInvest:

Breakevens are not inflation expectations (thread)

It explains how implied breakevens from TIPs are not the same as inflation expectations. One of the reasons is because it’s a small market that is easily distorted.

The second reason is more technical. TIPs are actually implicit options. The face value increases with inflation but is floored at par. So if we experienced deflation you’d get your now-even-more valuable USD back. We should presume the TIPs price reflects not just inflation expectations but a premium for the option value.

This is a familiar lesson. Think about volatility risk premiums. Since convexity improves portfolio CAGRs the expected value of owning an option should actually be negative in arithmetic terms. This is why quants will fancily say “implied vol is a biased estimator of realized vol.” It’s overpriced on average but it’s correlation and convexity attributes suggest it is not overpriced in a repeated, compounding framework.

Another demonstration of “price does not equal expectation” is found in correlation itself. Correlation swaps trade at cheaper levels than implied correlation because being short correlation is a concave (ie negatively convex) position. A correlation seller will require an additional risk premia to be short it. A further explanation can be found in my notes.

So whenever you imply an expectation from a price you need to strip out any additional risk premia or preference that is embedded in the price.

Related:

This ties in well with Why You Don’t Get Paid For Diversifiable Risks (MoontowerMeta)

Last Call

• Break Your Brain (crowdsourced thread)
  @Austen

  What can I read that will break my brain and cause me to never see life the same way again?

  Dawkin’s Selfish Gene and Hofstadter’s Gödel, Escher, Bach got lots of love.

• Extract or Die (Pirate Wires)
  Mike Solana

  Guilt trips are cheap persuasion techniques. Even if it works, eliciting someone’s pity response eventually leads to resentment. Mike Solana is trying to do SF a solid by re-directing its leaders from spouting guilt trips to actually responding to the concerns that are leads people to leave the Bay.

  I take extreme issue with the notion that industry leaders have taken something from the “community,” defined here as the “talent,” the “incubators,” and the “mentors.” This is precisely the opposite of reality.

  The backlash to the backlash against SF starts with that Rabois guy who is such a troll it makes you want to root for SF (like the Warriors, the fall from champ to underdog was steep). But the guilt-trip angle is not the way.

• The Spirit of Neil Peart (Rolling Stone)
  Brian Hiatt

  Avi sent this to me saying “get the tissues”. The iconic Rush drummer’s story has extreme highs and lows. A brain tumor took his life a year ago on Jan 7. About 10 years ago, I read the cathartic travelogue he wrote called Ghost Rider in the wake of his wife and 19-yr old daughter’s sudden deaths. His creativity in writing and drumming, permalearner attitude, commitment to craft, and love of the outdoors and adventure are inspiring.

• A Face You Just Want To Punch (Link)

  Apparently humans aren’t the only species that look at someone else and just let ’em have it.

• Jail (short vid)
  Parks and Recreation

  Yinh and I are big Fred Armisen fans and happened upon this 45 second cameo from Parks and Recreation that we keep re-watching.

From my actual life