GM and BRRR.

We received year-on-year consumer and producer price inflation data since Wednesday’s newsletter. On aggregate, we landed directly in-line with expectations:
CPI: 3.2% vs 3.3% expected
PPI: 0.8% vs 0.7% expected
“Core” CPI: 4.7% vs 4.7% expected
“Core” PPI: 2.4% vs 2.4% expected

Market reaction in our key sectors has remained muted, with the Nasdaq down 2% for the week and crypto roughly flat.

There are two near-term catalysts that’ll have outsized impact on our tech & crypto-heavy portfolio.

1) Nvidia earnings: Wednesday August 23rd
2) Bitcoin ETF, starting with the SEC’s first deadline to rule on ARK Investment’s proposal this Sunday August 13th

Nvidia’s Q1 earnings famously blew away expectations in May, soared by 50% and surpassed $1T in market cap. The report triggered an explosion in AI-related investment.

Can they meet the lofty expectations set just 3 months ago? We’ll learn soon, and that could set the tone for the entire upcoming quarter for the technology sector.

On the Bitcoin side, we’ve seen significant adoption amongst institutions and tech companies over the last few months highlighted by Blackrock applying for an ETF and PayPal announcing a stablecoin on the Ethereum network.

Should the SEC finally approve a Bitcoin ETF, many expects the structural flows to improve for the asset, as money from investment and retirement accounts will finally have a low-fee, accessible instrument to invest in the leading crypto.

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Macro News

The Case of the Inflated Jobs Report

A scathing new report from Standard Chartered alleges the BLS has manipulated the July jobs data to exaggerate job growth under the Biden administration. After adjusting for an unrealistic 280K jobs added by the birth-death model, private payrolls likely declined around 30K rather than increasing 182K as claimed.

This divergence is statistically anomalous and implausible based on actual administrative data on business dynamics showing net job losses. Over the past year, birth-death adjustments have averaged 94K per month, far exceeding the historical norm of 50-60K at current private payroll levels.

This suggests the BLS is artificially inflating the labor market strength to distract from Biden's mishandling of inflation. The BLS is essentially "goalseeking" the data for political purposes.

• Suspicious Statistical Divergence: The 280K birth-death adjustment was 4x higher than the 98K jobs lost at ongoing firms, whereas historically these numbers move closely together. This 4:1 divergence represents a glaring statistical anomaly that reeks of data manipulation.

• Administrative Records Conflict: Actual Business Employment Dynamics data based on administrative payroll records showed net job losses contradictory to the BLS model's inflated birth-death job creation estimates. The real-world data conflicts with the BLS assumptions.

• Historically Improbable Adjustments: The BLS' 94K average birth-death adjustment over the past year is 44% higher than the 50-60K average at comparable private payroll levels historically, suggesting an unprecedented exaggeration of labor market strength by the BLS.

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AI News

Who's Zooming Who? Users Cry Foul Over AI

Video meeting platform Zoom finds itself in a firestorm over AI ethics and trust. In March, the company quietly updated its labyrinthine Terms of Service to permit using customer data to train its AI models, without an opt-out.

This prompted outrage when author Ted Gioia's viral tweet earlier this week exposed the change. But the heart of the uproar is about more than legalese. It taps into growing public wariness of how personal data is used to develop AI, especially sensitive video and audio information.

While lawyers say TOS changes are typical, Zoom's complex policies and settings make consent unclear. And participants may feel cornered into agreeing simply to join meetings.

The debacle hits Zoom amid post-pandemic struggles to retain users, the last thing the company needs. More broadly, it underscores the tightrope tech firms walk on AI ethics. They aim to minimize regulatory risk, but earn user trust. For Zoom, this misstep ruptures that trust at an inopportune time.

Official Zoom Response:

• Backlash began: Author Ted Gioia's (now-deleted) viral tweet with over 2 million views exposed that Zoom quietly updated its Terms of Service in March to allow using customer data to train its AI models. This sparked outrage on social media and in the press over lack of transparency and consent.

• TOS changes standard: Lawyers say updates to Terms of Service are commonplace as company practices evolve. The key factor is whether users are properly notified of material changes. However, Zoom's complex TOS makes its AI policies unclear, and participants may feel they can't opt out of meetings.

• Tougher scrutiny: Zoom faces controversy amid broader enhanced FTC regulatory review of how tech companies gain consent from users to train AI models. Recent FTC actions against Amazon and Ring concerned transparency around using customer data for AI. Video and audio data raise particular privacy concerns.

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The BRRR is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.