Dear Reader,
SB Northstar is not a name that we would normally ever hear of.
Set up with $555 million in capital by Japanese media and technology conglomerate Softbank in August of 2020, it didn’t draw any attention. For a company worth roughly $230 billion with annual revenues around $50 billion, an amount like that was inconsequential.
But there was a lot more going on behind the curtain.
SB Northstar was effectively a hedge fund operating under the umbrella of Softbank. It had the ability to raise even more capital (billions of dollars) by taking loans from Softbank and leveraging other securities on Softbank’s own balance sheet.
What SB Northstar did with its newfound capital is even more interesting.
The company purchased billions of dollars in stock options on large, publicly-traded stocks, many of which Softbank itself already owned shares in.
By September of 2020, Softbank, through SB Northstar, had been identified as the “Nasdaq whale” – the company that was responsible for driving up volumes on popular tech stocks, and thus the Nasdaq index itself.
There was nothing illegal about what SB Northstar was doing… It was simply taking very large directional derivative positions in popular equities that had a lot of liquidity.
But by purchasing such an incredible number of options, the option sellers took the premiums and went into the market to buy even more stocks.
For a period of time, it was self-fulfilling. This financial engineering was effectively “pumping” the market.
It had nothing to do with the underlying companies or their value. In that way, what SB Northstar was doing was manipulating the market because of the sheer scale of the trades – hence being called the “whale.”
This isn’t the first time hedge funds and other kinds of fast money have used these kinds of tactics to goose the market. And it certainly won’t be the last.
Sometimes, it works. With enough volume and momentum, and very good timing, the fast money behind the manipulation can dump their positions on the market before the game is up.
SB Northstar wasn’t that lucky.
Days ago, it was reported that Softbank had liquidated most of its positions held by SB Northstar. And Softbank founder, Masayoshi Son, told investors that the hedge fund “is about to come to an end.”
While the numbers aren’t final yet, it is estimated that SB Northstar amassed somewhere between $6–$7 billion in losses. That’s pretty hard to do considering the original funding of SB Northstar was only $555 million… You really have to screw up to do that.
Son’s personal loss, as a direct investor into SB Northstar, is around $1.5 billion. He is an incredible executive that has built some fantastic companies. I sincerely hope that he continues to do so.
His investing style, however, is something else. His venture capital (VC) funds have been notorious in Silicon Valley for creating large distortions in private valuations.
Son and his team have been famous for muscling in to deals and overpaying at crazy valuations. Softbank’s Vision Funds have racked up some of the largest losses in VC history and have been associated with disasters of companies such as WeWork.
And SB Northstar is even worse. The goal was to drive volume into the market in hopes of making billions in profits at the expense of others. Again, Son was taking leveraged positions in overvalued stocks in hopes of pushing the market even higher.
Sadly, in the public markets, normal retail investors tend to get hurt when the whales like Softbank are toying with the market.
This is why valuations matter. Buying shares of companies like Snowflake at 52 times annual sales, or Cloudflare at 60 times annual sales, will never end well. They are both great companies with great technologies, but at those valuations I consider them to be “toxic.”
If they are trading that high, I can guarantee that there are hedge funds out there looking for the next group of unsuspecting investors to take their overvalued shares off their hands at a massive profit. Let’s make sure that we’re not the ones making that mistake.
Popular metaverse Somnium Space just made an interesting announcement, called the “live forever” mode. The idea is that Somnium Space will enable users to interact with their loved ones in its metaverse after they pass away.
I know this sounds like an episode of Black Mirror. But the concept isn’t new.
Artificial intelligence (AI) technology has advanced to the point where we can train an AI to be a virtual representation of anyone. It’s possible to do this by training an AI with information about an individual from the past.
Pictures, videos, voice recordings, writing samples, and social media posts – we can use all of them to train the AI to “embody” an individual within a metaverse. A digital avatar can be created that looks, talks, and moves just like a real person.
Somnium’s CEO Artur Sychov said the goal here is to produce an AI that’s so lifelike that family members would not discern a difference between the AI and their loved one for at least 10 minutes. This could allow people to regularly interact inside of this metaverse with loved ones who have passed on.
While there are some deeply disconcerting takes on using technology in this way, I’ve enjoyed a humorous take on this idea in a show called Upload. It’s available on Amazon Prime Video.
I learned about Upload from a reader of The Bleeding Edge who emailed me and recommended I watch the show.
It’s a comical take on someone who was “uploaded” into what is basically a metaverse. Then people from the real world are able to “teleport” into the metaverse to interact with those who have been uploaded.
And not surprisingly, not everything goes as planned – which is what makes the show entertaining.
This may sound disconcerting to some of us. But I do know that many would take comfort in being able to use technology in this way.
And with our rich libraries of videos, social media, e-mail, etc., it has become quite realistic to use AI to develop very lifelike avatars capable of feeling quite real.
I’m curious – is this something that would appeal to readers? Or do people see this kind of thing as unhealthy or even disturbing?
I always love to hear from readers. Please email me to share your thoughts.
Amazon has recently begun a massive recruiting effort. The tech giant now has a slew of job listings open for people with experience in augmented reality (AR) and virtual reality (VR).
And Amazon has a catchy spin on its campaign: The company is looking for professionals who can help build an “advanced” and “magical” extended reality (XR) product. XR refers to the combination of AR and VR in one device.
We can often get a feel for what a company is up to simply by keeping tabs on its hiring efforts. And right now it’s clear that Amazon decided to go all-in on AR.
We know this has been on Amazon’s radar for years now. In fact, the company filed patents around AR eyewear as far back as 2012.
Not much development appears to have taken place other than Amazon’s efforts to develop the Echo Frames smart glasses a few years ago.
But that product was a far cry from high-tech AR. It was just a pair of glasses with a speaker and microphone so wearers could talk with Alexa. That’s it.
And as we might expect, the Echo Frames never really caught on.
I’m a little surprised Amazon hasn’t been more aggressive on the AR front sooner. If consumers are walking around wearing Amazon’s glasses all day, there are all kinds of potential benefits to Amazon’s core business.
Think about it… The glasses could pull up an Amazon listing on demand for any item the wearer happens to see. Then they could buy the product right on the spot.
Advertising doesn’t get any more targeted than that – and Amazon would be in the position to “steal” the sale by offering prices that are slightly cheaper than what a consumer might see in a store.
So Amazon is late to the punch here. But based on the massive recruiting effort that’s in full swing right now, I would expect the tech giant to catch up quickly. And that makes it an ultra-competitive race.
We have talked quite a bit about all the companies working to develop AR eyewear. We looked at Niantic’s master plan just yesterday. And, of course, Apple, Facebook (Meta), Google, Snap, and others are all part of the fray.
As regular readers know, I expect we’ll see several major developments on the AR front later this year. It’s going to be fun watching how it all shakes out.
And there’s one company that will make a key component of many if not all of these glasses designs… I put together a presentation right here for any readers that would like to learn more.
We’ll wrap up today with an update from the genetically modified mosquito experiment we highlighted way back in August 2020.
As a reminder, a company called Oxitec released five million genetically modified mosquitos in the Florida Keys.
Oxitec’s Engineered Mosquito
Source: Oxitec
The goal was to reduce the overall mosquito population dramatically. Here’s how…
Oxitec changed the DNA in male mosquitoes so that they pass on a lethal gene when they breed. This gene causes female offspring to die young before they can reproduce.
This aims to reduce the overall mosquito population. In turn, fewer mosquitos should reduce the prevalence of diseases like dengue fever, Zika, and others. These are potentially fatal diseases that infect humans through mosquito bites.
Well, the results of this experiment are now available. And they appear to be entirely positive.
Oxitec was very strategic with its analysis.
The company set traps in certain areas throughout the Keys that it knew would be attractive egg-laying sites. This enabled them to capture more than 22,000 eggs. Then they took them back to the lab for observation.
And this confirmed that all the females who inherited the lethal gene died before reaching the age when they could begin to breed. It worked.
What’s more, researchers verified that the lethal gene persisted in the wild population for three successive generations before it stopped being passed down.
This is exactly what Oxitec hoped for. Their genetic modifications managed to cull the mosquito population without eradicating it entirely.
Now the company is gearing up for a new study. This one will be in Visalia, California. And it will design this study to provide a better measure of just how much the experiment suppresses the wild mosquito population.
We’ll continue to track Oxitec’s progress going forward. If its genetically modified mosquitos can consistently reduce wild populations, that could go a long way toward reducing fatal diseases in developing countries, especially in Africa.
Of course, there are always second- and third-order effects from these kinds of experiments as well. We need to get a feel for what those are before declaring this approach a complete success.
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.
