Thoughts about the markets, automated trading algorithms, artificial intelligence, and lots of other stuff

  • Rewriting The Past, Present, and Future

    "Fate has ordained that the men who went to the moon to explore in peace will stay on the moon to rest in peace." – Nixon's Apollo 11 Disaster Speech

    In an ideal world, history would be objective; facts about what happened, unencumbered by the bias of society, or the victor, the narrator, etc.

    I think it's apparent that history as we know it is subjective.  The narrative shifts to support the needs of the society that's reporting it.  History books are written by the victors. 

    The Cold War is a great example where, during the war, immediately after the war, and today, the interpretation of the causes and events has all changed.  

    But while that's one example, to a certain degree, we can see it everywhere.  We can even see it in the way events are reported today.  News stations color the story based on whether they're red or blue, and the internet is quick to jump on a bandwagon even if the information is hearsay. 

    Now, what happens when you can literally rewrite history?

    “Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped.“ – Orwell, 1984

    That's one of the potential risks of generative AI and deepfake technology.  As it gets better, creating "supporting evidence" becomes easier for whatever narrative a government or other entity is trying to make real.

    On July 20th, 1969, Neil Armstrong and Buzz Aldrin landed safely on the moon.  They then returned to Earth safely as well. 

    MIT recently created a deepfake of a speech Nixon's speechwriter William Safire wrote during the Apollo 11 mission in case of disaster.  The whole video is worth watching, but the speech starts around 4:20. 

     

    MIT via In Event Of Moon Disaster

    Media disinformation is more dangerous than ever.  Alternative narratives and histories can only be called that when they are discernible from the truth.  In addition, people often aren't looking for the "truth" – instead, they are prone to look for information that already fits their biases. 

    As deepfakes get better, we'll also get better at detecting them.  But it's a cat-and-mouse game with no end in sight.  In Signaling Theory, it's the idea that signalers evolve to become better at manipulating receivers, while receivers evolve to become more resistant to manipulation.  We're seeing the same thing in trading with algorithms. 

    In 1983, Stanislav Petrov saved the world. Petrov was the duty officer at the command center for a Russian nuclear early-warning system when the system reported that a missile had been launched from the U.S., followed by up to five more.  Petrov judged the reports to be a false alarm and didn't authorize retaliation (and a potential nuclear WWIII where countless would have died). 

    But messaging is now getting more convincing.  It's harder to tell real from fake.  What happens when a world leader has a convincing enough deepfake with a convincing enough threat to another country?  Will people have the wherewithal to double-check?

    Lots to think about. 

    I'm excited about the possibilities of technology, and I believe they're predominantly good.  But, as always, in search of the good, we must acknowledge and be prepared for the bad. 

  • A Look At Blackrock’s Holdings

    Last year, we looked at Warren Buffet’s origins, as well as his holdings (In the past, we’ve also taken a look at Renaissance and Jim Simons).

    As a math and artificial intelligence nut, looking at Warren Buffet is still educational.  It is fascinating to study his holdings as well as his perspective on the markets.  Clearly, he has an advantage and knows how to leverage it. 

    As the world continues to change, and edges come and go, it’s immensely valuable to understand what remains the same.  In Buffet’s case, he has always been honest about his bread-and-butter “trick” …  he buys quality companies at a discount and holds on to them.

    But what about another behemoth in the space – Blackrock?  They haven’t been around for nearly as long as Buffet, founded just 34 years ago in 1988.  Despite that, BlackRock has quickly become the world’s largest asset manager, with over $9 trillion in assets under management (AUM). 

    They aren’t as transparent as Berkshire Hathaway about what or how they do what they do.  From their website, BlackRock positions themselves as systematic investors leveraging vast datasets and new technologies. To look a little deeper, here is a chart showing their equity holdings.

     

    OC_BlackRocks-Equity-Holdingsvia visualcapitalist

    While Berkshire Hathaway and BlackRock take different approaches and the core of their equity investments aren’t the same … Apple is #1 for both of them.  Not particularly surprising. 

    While this is an interesting graph to look at, it’s important to know that this is one way to invest … and might be a reasonable way to get from a lot of money to even more money – but this might not be the portfolio that works for the average investor (or you). 

    When there is blood in the streets … asking, “What would Warren or Blackrock do?” might be a great place to start.

    But it is hard to have an edge if you use the same process and the same data as your competitors.

    As the flywheels of commerce spin faster, edges will emerge and decay faster.  Finding a solution is only a step in an ongoing process.  

    Robust, reliable, and repeatable innovation at scale is a meaningful competitive advantage.  That implies that idea factories will become as important (if not more so) than factories that produce material products.  Likewise, innovation funnels will become more important than sales funnels. 

    The world changes at the speed of thought … and as technology continues to improve … even faster.

    Onwards!

  • Here Are Some Links For Your Weekly Reading – July 9th, 2023

    Here are some of the posts that caught my eye recently. Hope you find something interesting.

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  • Economic Allies and Economic Enemies

    Last week, I brought up the concept of Economic Freedom. It reminded me of an idea I last shared in 2008, during the housing crisis. 

    I noticed how correlated and coordinated worldwide actions were during the housing crisis. During the pandemic, while there was a lot of dissent, there was also a remarkable amount of coordination. 

    Why Do We Shake Hands? | Mind Fuel Daily | Life & Journey

    The concept of economic allies presupposes that we also have economic enemies. It’s easy to construct a theory that countries like Russia and China use financial markets to exert leverage in a nascent form of economic warfare.

    It's easy to come up with a theory that suggests we are our own worst enemies. Our innate fear and greed instincts (and how we react to them) tend to lead us down a path of horrifying consequences. This has been evident in recent years, not just in society, but also in the world of business. I am confident that this pattern will persist in the context of Artificial Intelligence, with both its potential benefits and risks.

    The butterfly effect theorizes that a butterfly flapping its wings in Beijing on one day can create or impact a rainstorm over Chicago a few days later. Similarly, in a world with extensive global communication and where automated trading programs (and even toasters) can interact with each other from anywhere across the globe, it is not surprising that market movements are becoming larger, faster, and more volatile.

    Perhaps governments cooperate and collaborate because they collectively recognize the need for a new form of protection to mitigate the increasing speed, size, and leverage behind market movements.

    And we can also extend this idea to other entities beyond governments. It doesn’t have to be limited to traditional markets either; it can include cryptocurrencies or other emerging technologies as well.

    It’s worth understanding the currents, but we must also consider the undercurrents and countercurrents. 

    Conspiracy theories are rarely healthy or helpful, but maintaining a healthy skepticism is a great survival mechanism.

    Hope that helps.

  • The AI Hacking Paradox

    Fear is a natural response to change or the unknown, serving as an evolutionary mechanism designed to safeguard us. However, it’s also worth noting that many of our fears turn out to be unjustified.

    Sometimes, however, fear is a much-needed early warning system. 

    In the context of AI hacking, you should be afraid. Given the exponential growth in technology and artificial intelligence, concerns about security breaches and intentional misinformation campaigns have become common.

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    In 2016, DARPA created the Cyber Grand Challenge to illustrate the need for automated, scalable, machine-speed vulnerability detection as more and more systems—from household appliances to major military platforms—got connected to each other and the internet. During this event, AI systems competed against each other to autonomously hack and exploit vulnerabilities in computer programs. The competition revealed the unprecedented speed, scope, scale, and sophistication with which AI systems can find and exploit vulnerabilities.

    And that was seven years ago. 

    AI hackers operate at superhuman speeds and can analyze massive amounts of data, enabling them to uncover vulnerabilities that might elude human hackers. Their ability to think differently, free from human constraints, allows AI systems to devise novel hacks that humans would never consider. This creates an asymmetrical advantage for AI hackers, making them formidable at infiltrating and compromising systems.

    We expect people to use AI for malicious purposes intentionally, but unintentional AI hacking arises when an AI autonomously discovers a solution or workaround that its creators did not intend. This type of hack can remain undetected for extended periods, amplifying the potential damage caused. 

    So, how do we stop it?

    Ironically, or perhaps, exactly as you would expect it, AI itself holds the key to defending against future attacks. Just as hacking can drive progress by exposing vulnerabilities and prompting improvements, AI hackers could potentially identify and rectify weaknesses in software, regulations, and other systems. By proactively searching for vulnerabilities, they can contribute to making these systems more hack-resistant. This is the paradox of AI hacking. 

    It’s the same concept as I mentioned in the article on potentially halting the creation of generative AI.  

    Unfortunately, when you invent the car, you also invent the potential for car crashes … when you ‘invent’ nuclear energy, you create the potential for atomic bombs. That’s not a reason to stop innovation – it’s a call to action for innovators to respond faster and counteract the bad actors. 

    We can’t stop bad actors from existing – but we can get better at preventing harm due to them. This is a helpful framework for innovation. If you want to stop the bad actors from misusing a technology, the good actors "simply" have to get better at using the technology faster. 

    The best way to stop negative motion is with positive motion. But, we can also make moves in the background to counteract bad actors and bad actions.

    For example: 

    1. Regulation and Transparency: Regulatory frameworks can be established for AI technologies that demand transparency regarding how they function and how they’re secured.
    2. Ethical Guidelines: Implementing ethical guidelines for AI development can help prevent misuse.
    3. Cybersecurity Measures: Enhancing cybersecurity protocols and utilizing state-of-the-art encryption methods could make AI systems more resilient against hacking attempts.
    4. Education: Increasing public understanding of AI technologies would spread awareness of their benefits alongside potential risks.

    While these measures won’t eliminate the potential risk of AI hacking, they could significantly mitigate it and provide reassurances about employing such technologies.

  • Here Are Some Links For Your Weekly Reading – July 2nd, 2023

    Fourth of July: How cartoonists celebrate the freedom to skewer our leaders - The Washington Post

    Here are some of the posts that caught my eye recently. Hope you find something interesting.

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  • Understanding Economic Freedom

    We often think about the U.S. as the "land of the free." That is good marketing … but is it true?  In large part, it depends on the contexts and frameworks you choose to evaluate what constitutes freedom. 

    For example, Strategic Coach breaks "entrepreneurial freedom" into four categories: time, money, relationships, and purpose.

    Meanwhile, if you look at the First Amendment of the U.S. Constitution, you've got freedom of speech, press, assembly, and the right to petition the government … and we've since instituted a litany of other freedoms and liberties. 

    In this post, we will examine the concept of economic freedom.  Economic freedom represents more than just freedom to make money, it pertains to the decisions and liberties one has in that pursuit. 

    The Heritage Foundation releases a yearly Economic Freedom Index. 

     

    Economic-freedom-2023-MAIN-1

     

    According to VisualCapitalist, the ranking uses four broad categories, each with three key indicators to measure economic freedom.

    1. Rule of law: property rights, judicial effectiveness, government integrity
    2. Size of government: tax burdens, fiscal health, government spending
    3. Regulatory efficiency: labor freedom, monetary freedom, business freedom
    4. Open markets: financial freedom, trade freedom, investment freedom

    The 12 indicators are weighted equally and scored from 0-100.  The overall score is the average score among those indicators. 

    Based on these metrics, the U.S. doesn't even enter the top 10. 

    Screen Shot 2023-07-01 at 2.14.51 PM

    Surprisingly, the U.S. ranks 25th overall – and only 3rd in the Americas. 

    Now, freedom means a lot of different things, and economic freedom is only one of many modalities … but it's an important factor. 

    If you were in control, what change would you make to increase the United States' economic freedom?  If you're not from the U.S., where does your country rank, and why?

  • Nvidia Joins The Trillionaire Club

    Believe it or not, Nvidia is now worth nearly as much as Amazon. America’s largest semiconductor company has skyrocketed past the $1 trillion market cap mark and joined the likes of Apple, Amazon, and Microsoft. 

    Nvidia-1-trillion-market-cap-club-MAINvia visualcapitalist

    My Thoughts

    Nvidia’s growth is largely built on the back of the AI hype. It is also a mainstay of technology, benefitting a litany of AI projects, gaming systems, crypto mining, and more. 

    But, the question is whether it will continue to rise in popularity – or see a “correction” to pre-hype levels. I think the reality is you’ll see both happen.

    Despite my obvious bullishness on AI as a market mover and industry transformer, after a hype cycle comes a trough of disillusionment. The media attention on AI will diminish again. Meanwhile, tech giants like Google and Apple rely on the technology, and Nvidia has also launched new products spanning from robotics to gaming. So, as the hype dies down, its mainstream uses will increase. 

    These chips will only continue to be more important. We saw the company’s stock rise and fall during the peak of inflated expectations of cryptocurrency, but AI’s staying power – I believe – is inevitable. 

    So, while it may not be a good investment in the short term, it’s a technology you can count on to be essential for decades. 

  • Musk vs. Zuckerberg: Fight Of The Century

    In today’s “Truth is Stranger than Fiction” episode, Elon Musk and Mark Zuckerberg seem to be discussing a "cage match." But, for those of us who have been around awhile, we remember the first real billionaire fight when Herb Kelleher, co-founder of Southwest Airlines, settled a business dispute with a rival by arm wrestling in front of an audience at an arena, in an event dubbed “Malice in Dallas.” 

    This supposed cage fight started because Elon responded to someone on Twitter saying, “I’m up for a cage match if he is lol” to which Zuckerberg posted an Instagram story saying, “Send Me Location.”

    Mark-zuckerberg-responds-to-elon-musk

    Supposedly, there’s a real chance they do it, and talks they may do it in Vegas.  

    Now, their beef isn’t new. Back in 2016, Musk’s SpaceX was contracted to shuttle a satellite into orbit for Facebook. During a routine test, an explosion on the ground caused the satellite to be destroyed, and Zuck to say, “I’m deeply disappointed to hear that SpaceX’s launch failure destroyed our satellite that would have provided connectivity to so many entrepreneurs and everyone else across the continent.”

    Ever since, they’ve been going at it. They take different stances on AI. They’ve gotten off each other’s platforms, etc. 

    So … who do you think will win?

    Red and Yellow Modern Boxing Match Facebook Post

  • Here Are Some Links For Your Weekly Reading – June 25th, 2023

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    Here are some of the posts that caught my eye recently. Hope you find something interesting.

    Lighter Links:

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