Dear Reader,
This year’s markets have been the most challenging that I’ve witnessed since I started investing in my late teens.
What we’re seeing now is the culmination of years of artificially low interest rates, quantitative easing, and reckless and wasteful spending by the world’s governments.
I’ve never seen so much government involvement and control over supposedly “free markets.”
It isn’t going so well.
But the strange dynamic is that the money is there. It’s waiting to be allocated, but stuck in indecision. The public equity markets are too volatile, and the Federal Reserve is hellbent on continuously jacking up interest rates at the expense of everyone’s retirement accounts, ensuring volatile swings in the markets.
This has resulted in hundreds of billions of dollars in capital being “parked” in money market funds, or short-term Treasurys, in an effort to lose less.
And with interest rates rising, that same capital is waiting until the Fed backs off before allocating large amounts of money into bonds at much higher interest rates.
After all, who wants to invest at 3.25% today when they believe they can lock in 5% six months down the road? Hence the indecision.
What’s interesting is that this dynamic is also playing out in the private markets… even though it shouldn’t be that way.
After all, uncertain market conditions mean that early-stage private companies can be invested in at more attractive valuations. And private investing is a longer-term game. We’re not worried about what happens in the next year or so, but rather what happens in the next three to five years.
But the reality is that if a private company has capital, it’d prefer not to raise more money right now. It’s better to wait until higher-valuation multiples return. And venture capitalists often get squeamish with continued public market volatility.
This means there’s a record level of dry powder sitting on the sidelines in the world of venture capital, as you can see in the chart below:
U.S. Venture Capital Dry Powder
Amidst all this chaos that we’re living through right now, the amount of capital committed by limited partners to venture capital funds is at record levels—almost $300 billion.
That’s an unbelievable amount, and almost twice as much as 2019 (which in itself was a record year).
But what exactly does it mean?
Well, it means that we can expect a flood of investments flowing back into both the public and private markets the moment that we see a pause or pivot from current monetary policy. Once we’re through this mess of interest rate hikes and “faux tightening,” that dry powder will be looking for a home.
Given what we’re seeing right now through the end of the year, we should unfortunately expect more of the same. But capital like this is impatient. If it isn’t allocated, people start asking for it to be returned.
And that means we’re in for a much better 2023.
In fact, based on what we’re seeing right now in many public and private valuations, I suspect that the inflow of capital—once it starts to happen—will be unlike anything we’ve seen before.
A new CRISPR start-up is creating a lot of buzz in the industry right now.
For the benefit of newer readers, CRISPR is the bleeding edge of genetic editing technology. It can correct “typos” in our genetic code in order to cure diseases that were previously thought to be untreatable.
The new private company making waves in this space is called Tome Biosciences. And it’s definitely one for us to watch going forward.
Tome is especially interesting because it was founded by two individuals who studied under Feng Zhang. They are Omar Abudayyeh and Jonathan Gootenberg.
Zhang is the scientist who filed the original patents for CRISPR Cas9 genetic editing technology as applied to eukaryotic cells (human cells). He was working with the Broad Institute at the time. And Zhang’s patents were the first to depict how CRISPR could be used to modify human DNA.
Regular readers may remember that these patents prevailed in a patent dispute between Broad Institute and U.C. Berkeley earlier this year.
Zhang is a legend in the space. And his two proteges are now making a name for themselves.
In fact, they’ve raised over $95 million from some big-time biotechnology venture capitalists (VCs). Arch Venture Partners, Andreesen Horowitz, and Polaris Partners are the most notable.
These are three of the most prominent VCs in the biotech space. When they allocate capital to a new start-up, it’s smart to pay attention.
And it’s clear to me why they’re so excited about Tome Biosciences.
Tome appears to have solved one of CRISPR’s biggest limitations—the number of edits a single therapy can perform. I like to think of Tome effectively as a third-generation CRISPR company.
First-generation CRISPR therapies operate very much like software programming for DNA. They “cut” out mutated genes and replace them with healthy versions. We can think of it like Word’s cut and paste features.
Building upon this success, some companies have advanced CRISPR technology into the realm of “base editing,” also called “prime editing.” This is where a therapy can simply “swap out” a particular DNA base pair for a different one.
But there’s a big limitation here. Second-generation CRISPR therapies can typically insert tens of base pairs at a time.
That’s useful for treating certain genetic diseases. But this approach cannot tackle the more complex diseases that cause a greater number of mutations.
And that’s where Tome Biosciences comes in.
The founders published a paper demonstrating the ability to insert 36,000 base pairs at one time. This opens the door to treating the most complex genetic diseases out there.
It’s remarkable to see the progress this technology has made over the past few years. Longtime readers may remember we first covered this technology back in 2015.
At the time, it was mostly theoretical, and only spoken about in some academic circles. Today, the technology has advanced to a level that would have been unthinkable back then.
Were it not for the weak market, I suspect news like this would have propelled CRISPR-related stocks higher. But this also demonstrates that—while markets are weak—innovation in the space is still going strong.
And it’s advancements like this that will propel the entire industry forward—and move stock prices—when healthier markets return.
One final point to keep in mind…
My talking about “generations” of CRISPR companies doesn’t imply that the newer generations are any better than the earlier ones.
CRISPR is a technology platform from which many techniques can be derived. Some diseases are best suited to be cured using certain kinds of CRISPR techniques. It’s the equivalent of finding the right tool for the job.
What’s so exciting about CRISPR companies is that their market opportunity is a complete greenfield. There’s far more opportunity right now than there are CRISPR companies and genetic engineers to improve them all.
New entrants only make the pie that much larger for the industry and raise the profile of these bleeding-edge companies.
There’s big news on the digital asset front. And I’ll be honest: This makes me nervous…
The U.S. House Committee on Financial Services just voted unanimously for developing a national stable coin, or a central bank digital currency (CBDC), for the United States.
For the benefit of newer readers, we can think of a CBDC as a digital version of a nation’s currency. In this case, the U.S. dollar. A purely digital currency would remove a lot of friction from transactions. But there’s a darker side…
The House Committee specifically named the progress China has made on its own CBDC as justification for pressing forward with a U.S. version.
As we know, China is pairing its CBDC with a social credit score system. That enables it to restrict purchases and access to services for citizens who behave in ways the Chinese government doesn’t like.
In other words, China wants to use its CBDC as a weapon to enforce its desired political objectives. Any who object can be censored, punished, and have restricted access to their own funds.
Of course, the U.S. government hasn’t openly expressed interest in utilizing similar practices.
But after what we’ve all suffered during the last two years of censorship and banning of U.S. taxpayers—not to mention scientists who shared factual information and research about certain subjects—it’s easy to see how the government could be tempted to use a CBDC for political purposes.
Is our government interested in a superficial way of addressing climate change? The amount of gasoline we purchase could be limited.
Are we not paying our “fair share” in taxes? The IRS could theoretically track and tax every transaction we make and simply deduct their desired amount from our U.S. digital dollar wallet on our smartphone.
Do we hold “unacceptable views?” We could effectively be de-platformed from the financial system altogether.
I’m not saying these things will happen. But with a CBDC and related technology, these types of things become far too easy to implement.
And the U.S. government appears to be moving from “cautious” to “urgent” when it comes to some form of a national digital currency.
This is something that’s certainly a major focus for us at the Chamber of Digital Commerce. We’ve been pushing for sensible regulations around digital assets. We’re also pushing for a sensible framework around any national CBDC.
We’ll wrap up with an interesting development from Walmart.
The company just released a new feature that allows consumers to try on clothes virtually using augmented reality (AR).
It’s the final frontier for ecommerce.
Many of us now buy the majority of our goods and even groceries online. But for many, clothing is a different story. We just never know how something will look or fit until we try it on.
Walmart’s new feature seeks to solve that problem. Here’s how it works…
It starts by downloading Walmart’s “Be Your Own Model” app. The app instructs users to take a picture of themselves in a well-lit area wearing tight, form-fitting undergarments. Then it asks users a few questions around height and weight to get a feel for their body type.
From there, Walmart’s machine learning (ML) goes to work.
First, it analyzes the picture by taking advantage of the 3D-sensing technology that already exists in our smartphones. Then the ML pairs that with the questionnaire to create a 3D image of the consumer in the clothes they’re browsing.
Trying On Clothes Virtually
Source: The Verge
Consumers can instantly “try on” any other clothing items they want. The feature is available on more than 270,000 items across Walmart’s clothing portfolio. And if we like how we look in a particular outfit, we just tap the button to buy it.
As I write, Walmart is the second-largest clothing retailer in the world—just behind Amazon. Last year, Walmart sold over $65 billion worth of clothes. And that number will only increase with this new development.
I share this story to demonstrate that augmented reality is no longer the realm of science fiction. Multibillion-dollar businesses are adopting this technology to drive new business.
Augmented reality games—like Pokémon Go—have been some of the most popular downloads in Apple’s app store. Amazon uses AR to allow customers to “view” how pieces of furniture will look in their homes. Now, we can add Walmart to the list.
But the way to invest alongside these trends is not through Apple, Amazon, or Walmart. The best exposure will be found with the early-stage companies supplying the components necessary for 3D-sensing.
And of all the companies in this space, one of my favorites right now is Lumentum (LITE).
The stock has been volatile with the recent market action. But longer term, Lumentum is one of the very best ways to gain access to this trend and is a company that has incredible upside potential from where it’s trading today.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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.
