What would the world do without Elon Musk?
With these NFT sneakers, we could fly…
These AR glasses are taking a different approach…
Dear Reader,
It’s been a little over a year since we had a look at Bill Hwang and the now notorious Archegos Capital Management.
As a refresher, around March of 2021, it was thought that Archegos had around $10 billion under management. Archegos was structured as a fund that Hwang could use to manage money for himself and his family.
Hwang was largely unknown in the industry. He was a former employee of Tiger Management, a company that got into trouble with the U.S. Securities and Exchange Commission (SEC) in 2012 for insider trading and the manipulation of Chinese bank stocks.
Hwang settled the case without any admission of guilt, but Tiger Asia pleaded guilty to wire fraud. That should have been the end of the story.
After something like that happens, it’s hard to find work, so he found religion and set up his family office fund.
Hwang was able to grow his own wealth from $1.5 billion to $35 billion in the span of just one year… unheard of. Many were amazed by his financial “prowess” and acumen. After all, he didn’t build Tesla or SpaceX. It all came from trading equities.
Was he a genius? A savant? Clairvoyant?
Then, last year, something extraordinary happened. It turned out that Hwang was thought to have levered up the fund’s assets by anywhere between three to 10 times. That meant that Archegos was potentially trading $100 billion in assets on a much smaller capital base.
And that’s where things went wrong. As we saw last year, the whole thing blew up spectacularly.
One of Hwang’s major established positions dropped, and then the margin calls came in… After that, it was like an avalanche.
Investment banks that were stupid enough to lend him the money to lever up got crushed. Archegos lost just about everything, and those investment banks lost billions.
But the story gets even better.
Hwang was just indicted on charges that could lead to 380 years in prison. As it turns out, what we knew last year was just the tip of the iceberg.
Archegos built a house of cards that had a $160 billion position in equities. $160 billion! That made it the largest hedge fund in the world. Managed by just one person… a family office fund, nonetheless.
The SEC, after a year’s worth of investigation, determined that Hwang had been intentionally manipulating the markets and committed wire fraud and securities fraud, among a long list of other charges.
Hwang’s “secret” to his success was the use of derivatives called swaps. He would build up concentrated positions on stocks using leverage… Then he would pay investment banks to enter into a swap agreement that would give Archegos exposure to the profits (or losses) of the stock without having to own the stock directly.
The investment banks were happy to take in the fees to execute the swaps and earned additional capital on the interest rates charged. And in order to execute the swap, the investment banks had to buy the stock in question. By doing so, it drove up the share price of the stock.
And as the swap positions increased in size, so did the buying. Archegos was able to manipulate the market through the use of these derivative contracts.
The scheme appeared to be working great, as long as everything kept moving up. As long as the banks didn’t ask too many questions, the investment banking fees would continue to flow and bonuses would be paid.
In the end, the banks were left holding the bags… to the tune of losses greater than $10 billion.
While the bad actor(s) were clearly Hwang and certain members of his team, we have to wonder – where the heck were all of the fancy degreed risk management, compliance, and PhDs who are hired to avoid exactly a situation like this?
And I can say with certainty that there were many skeptics who were close enough to Archegos to know that something just wasn’t right…
Yet not surprisingly, Hwang and his CFO at Archegos both pleaded not guilty yesterday to the SEC charges.
How can we trust Wall Street when we see these kinds of antics year in and year out? Whether it be the manipulation of commodities prices, foreign exchange rates, or interest rates; it is always something.
Long Term Capital Management is another perfect example. I highly recommend Roger Lowenstein’s book When Genius Failed on that same topic.
And most of us painfully remember the financial crisis of 2008/2009 caused by excessive leverage in the banking industry and the use of another form of derivative: credit default swaps tied to the U.S. mortgage industry.
It’s always something, which is why it is so important for us, as investors, to take responsibility for our own financial future. It’s hard work, and it’s a learning process, but it always pays off in the end.
We had a look on Tuesday at how Elon Musk’s Boring Company is cashed up and ready for business.
Well, the story just got even more interesting.
As a follow-on development, The Boring Company revealed that it plans to test a full-scale hyperloop later this year.
This is huge news.
For the sake of newer readers, hyperloop technology utilizes magnetic levitation and vacuum tubes to power super-fast trains at speeds of 600 miles per hour or more.
We talked about this concept in late 2020 when Virgin Hyperloop, now a Richard Branson company, was gearing up to test a hyperloop track in West Virginia.
Yet this technology all stems from a white paper that Musk wrote back in 2013, spelling out how the physics underlying hyperloop technology work.
To give us a visual, here’s an image from that white paper:
Hyperloop White Paper Sketch
Source: Tesla
Here we can see a rough sketch of what a high-speed hyperloop train would look like. And Musk was even kind enough to outline how the physics would work as the capsules zip through the transportation tubes.
Hyperloop Physics
Source: Tesla
At the time, Musk was far too busy with SpaceX and Tesla to take on another project. So he put his idea to paper, and then he made the white paper available to the world. Anyone was free to take the work and run with it.
In fact, Hyperloop Technologies, which later become Virgin Hyperloop, was formed on the back of Musk’s paper. Another company, Arrivo, tried to do the same.
As for his motivations, Musk was responding to a high-speed rail transportation project proposed in California. The project could have cost taxpayers $68.4 billion… if everything went perfectly.
Musk showed that a hyperloop system of the same size would cost less than $6 billion. That’s over 91% less expensive.
Now that SpaceX is humming, and Tesla is dominating the EV and autonomous driving market, it appears that, incredibly, Musk has some bandwidth to bring this idea back to life. With The Boring Company fully capitalized, he has the perfect opportunity to expand the business into hyperloop technology.
As Musk pointed out, we can build this technology at fractions of the cost of a high-speed rail system. As such, it can make public transportation far more efficient. Plus, we can also ship cargo through hyperloop systems as well.
Musk thinks hyperloop technology is the fastest way to move people and cargo over any distance that’s less than 2,000 miles. That’s the value proposition here.
And here’s the thing – all the technology needed to build out hyperloop systems already exists. It’s not as if some new technology needs to be invented.
We have already seen a proof-of-concept with Virgin Hyperloop’s tests in West Virginia. The tech works, and as usual, Musk will do it even better.
That’s why Musk is so confident that The Boring Company can build and test a full-scale hyperloop later this year. He has both the capital and the engineering wherewithal to make it happen.
And my guess is that once large municipalities around the world see the advantages, they will extend massive contracts to have their own hyperloops built. I would not be surprised to see The Boring Company ink a nine-figure deal as early as next year.
Given how fast the Prufrock machines can dig tunnels, we may just see our first hyperloop in the U.S. within the next few years.
For more than two decades, I’ve enjoyed the bullet trains in Japan as the best form of high-speed transportation. Hyperloop technology has the potential to be even better and far faster than anything bullet trains could achieve.
I don’t know about you, but I’m ready for the ride.
Nike and non-fungible token (NFT) design studio RTFKT (pronounced artifact) just unveiled their first collaborative project together. It’s something the NFT world has never seen before…
As a reminder, Nike acquired RTFKT back in January specifically to gain exposure to NFTs and the metaverse trend.
And here’s our first look at what they have been up to:
CryptoKicks
Source: RTFKT Studio
The two companies are calling this pair of sneakers CryptoKicks. They are NFTs based on Ethereum’s blockchain. And digital avatars in the metaverse will wear them.
As we can see, there is a base shoe design that we can enhance by using something called “Skin Vials.” These vials create new colors and designs over the base layer.
And here’s the innovative part…
On the surface, it looks like these sneakers are just digital artwork and virtual shoes. And they certainly are.
But they also convey certain skills and abilities to avatars inside of different metaverses. Maybe they make the avatar run faster. Maybe they confer superhuman jumping ability. Maybe they even allow the avatar to fly.
Even more interesting, the skills conveyed could be different depending on which metaverse they are in. And to be clear, whoever buys the NFT could deploy these sneakers in any and all metaverses that support them. That will make them highly desirable.
And, of course, Nike and RTFKT are working to develop a physical version of these sneakers as well. Whoever buys the NFT will have the actual sneakers in their size shipped to them as well. That’s the “digi-fizzy” sales strategy that’s becoming popular in the NFT space.
While it’s early, the first drop has been received extremely well. The entry price was an incredible $7,500, and one rare pair of Cryptokicks has already exchanged hands at an incredible $450,000.
The combination of branding, the application to use these NFTs in metaverses, and the digi-fizzy benefit with these NFTs is what makes this approach so interesting.
Not only does the market see these NFTs as something interesting to own, they also see them as something that will increase in value over time.
And as we know, big shifts like these also spell big opportunities. That’s why my team and I are working tirelessly to find the absolute best ways to play this burgeoning trend.
For readers who would like more information and specific investment recommendations, go right here.
We’ll wrap up today with another major launch in augmented reality (AR).
Regular readers may remember China-based AR player Nreal. The company was founded by an executive who came from Magic Leap.
Well, Nreal just partnered with British wireless operator EE to launch augmented reality sunglasses in the U.K. And the two have a unique take on what the AR experience should look like.
It’s all about entertainment.
Nreal’s AR sunglasses look and feel a lot like regular sunglasses. They are a little bulky around the temples, but otherwise, the form factor is good.
And they only weigh 79 grams. That’s comfortably beneath the 100-gram threshold that the industry believes to be critical for mass adoption.
Here’s a look:
Nreal’s AR Sunglasses
Source: EE
What makes these glasses unique is that they project a 201-inch high-definition display about 20 feet in front of the wearer. Here’s a visual:
Nreal’s AR Projected Display
Source: EE
As we can see, with these AR glasses, consumers can basically carry a movie theater-like screen around with them wherever they go.
And the glasses connect to a smartphone using the USB C port. This enables wearers to stream movies, shows, and sporting events from any service they subscribe to.
That’s how the person depicted above can take a break from playing soccer to watch a professional game through the glasses. I doubt that I would do that, but I can definitely see how a lot of other people would.
So Nreal’s approach isn’t about augmenting our physical world like we have seen from most other players. It’s simply about having access to a big screen from anywhere at any time – basically, it’s about entertainment.
While this lens technology is certainly impressive, I see Nreal’s overall angle as less sophisticated. I’m interested to see if these catch on in the U.K. That will be very telling.
Still, I’m glad to see the industry experimenting with different approaches to augmented reality. As I have said before, this represents the next mass-market consumer electronics craze. It’s only a matter of time.
And for readers who would like my top recommendations to gain exposure to this blossoming trend, I’d encourage you to watch my full presentation on the topic right here.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
