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

  • The State of Democracy

    I feel very lucky to live in America and lucky to live in a democracy … but democracy is a term that encompasses a wide spectrum of activity and governments. In the same way that Republics and Capitalism also represent a wide spectrum of activity.

    America has adopted a form of all three of those underlying structures, but it changes with each regime change, and as we adapt to the complexities of modern-day civilization.  

    It's worth understanding the nuances of what brand of democracy you live in – and what would make it ideal (in your opinion).

    That's a much too complicated question to answer in the scope of this article, but a great starting point is understanding the world spectrum of Authoritarian -> Full Democracy, and how the different countries score. 

    Luckily, visualcapitalist put together a great interactive graphic based on the Democracy Index global ranking (as of 2019). Click the image to see the interactive version.

    State-of-democracy-1200-1

    via visualcapitalist

    Before I get into the rankings, a quick look at the classifications within the Democracy Index. It bases the score on 60 questions that cover things like the electoral process, civil liberties, government functions, and political culture. 

    • Authoritarian Regime: 0.0 – 3.99
    • Hybrid Regime: 4.0-5.99
    • Flawed Democracy: 6.0-7.99
    • Full Democracy: 8.0 – 10.0

    Topping the list is Norway, and the most Authoritarian regime is North Korea.

    Unfortunately, based on this metric, the U.S. (which is one of the oldest democracies in the world) was downgraded to a flawed democracy as of 2016, after teetering for many years. Some stated reasons for this shift are the growing distrust in public institutions, an upshot in ideological purity, and less bipartisan efforts. 

     Since 2006, when the Index was created, Democracy has actually been decreasing globally. Today, around half of the world's population lives in a democracy of some sort, with only 5.7% living in a "full democracy". 

  • Here Are Some Links For Your Weekly Reading – September 12th, 2020

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

    Lighter Links:

     

    Trading Links:

  • Innovator Mindsets

    To some, new technology is a good thing.  To others, less is more.

    Most people simply "tolerate" technology transitions, some people drive them, and others crave them and use them as a catalyst for growth or strategic advantage.

    640px-Diffusionofideas
    In the image, above, the blue line represents consumer adoption (taken from Geoffrey Moore's "Crossing the Chasm", while the yellow line represents market share. 

    As you can see, only 2.5% of the population drive innovation (or adopt it early enough to help drive the Alpha & Beta versions of emerging technologies). 13.5% make up the Early adopters, who help get it ready for the mainstream.  Then the early and late majorities are the groups that ultimately consume (or use) the mature product. Meanwhile, Laggards are often forced kicking and screaming into “new” technologies as the early adopters are well on their way to subsequent iterations. 

    Even if you are not an innovator, here are a few Innovator Mindsets that I find useful. 

    1. You Believe There’s A Better Way
      • Wherever you are, you know that there is a best next step and you are eager to find it and take it.
      • You recognize that the opportunity for more (or better) often lies just beyond the constraints or problems of the current way.
      • The bigger future fuels your efforts. When initial excitement fades, understanding what the bigger future can bring helps you power through.
    2. You Are Comfortable Being Uncomfortable
      • You understand that Pioneers sometimes take arrows in the back.
      • When creating a new reality, you expect some resistance as a result of the law of averages. Escaping the status quo takes a lot of momentum, but it’s worth it. 
      • You recognize when victory is near.  In a quirk of human nature, too many people quit just before they would have won. Don’t make that mistake.
    3. You Know Where You're Going, Even If You Are Not Sure How You're Going To Get There
      • Your goal should be your North Star. A clear direction is important to ensure that activity leads to progress.
      • Measure progress and momentum rather than the distance from your goal.
      • It is easier to course-correct while in motion.
      • If you’re too committed to a path that isn’t leading in the right direction, you might find what Blockbuster, RadioShack, and Kodak found.
    4. You Are Married To Questions (Not Necessarily Answers)
      • Everything works until it doesn’t; and nothing works forever.
      • It’s easy to find an answer and think it’s the right one, but there’s always a best next step or a better way.
      • Figure out what you want and how to get it. This is much more empowering than focusing on what you don’t want or why you can’t get it.
      • Ask questions that focus on opportunities or possibilities rather than challenges or what you want to avoid.
      • Energy flows where focus goes.
      • Commit to finding a way!

    I plan on sharing more Innovator Mindsets.  Let me know what you think.

  • Feast on This: The Big Mac Index

    In the past, I've shared various "indicators" for markets that just don't make sense — like the Superbowl Indicator. The lesson to learn from those indicators is that we crave order, and look for signs that make markets seem a little bit more predictable even where there are none. 

    Wall Street is, unfortunately, inundated with theories that attempt to predict the performance of the stock market and the economy. More people than you would hope, or guess,  attempt to forecast the market based on gut, ancient wisdom, and prayers.

    While hope and prayer are good things … they aren’t good trading strategies.

    Today, I want to talk about a still "out there" index, but one that's a bit more practical from an economics standpoint (remember economics ≠ markets). I don't believe it should influence trading decisions, but I do believe it can teach you something about the practical realities of economies. 

    The Economist's Big Mac index seeks to make exchange-rate theory more digestible.  They say it is arguably the world's most accurate financial indicator (based on a fast-food item).

    The Big Mac index is based on the theory of purchasing-power parity (PPP), according to which exchange rates should adjust to equalize the price of a basket of goods and services around the world. For them, the basket is a burger … a McDonald’s Big Mac. The difference the disparity in price between Big Macs, and the actual exchange rate lets you know whether the currency is over or undervalued. 

    According to this measure (as of July 15th, 2020), the most overvalued currency is the Swiss Franc at 20.9% above it's PPP rate. In Switzerland a Big Mac costs 6.50 francs. In the U.S. a Big Mac costs $5.71. The implied exchange rate is 1.14, and the actual exchange rate is 0.94 — thus 20.9% overvalued. For contrast, South Africa Rands are the most undervalued (67%) with a Big Mac costing 31 rand and an actual exchange rate of 16.67. 

    Click the image below to see the interactive graphic.

    Screen Shot 2020-09-06 at 11.19.19 AM2via The Economist

    The index is supposed to be a guide to the direction in which currencies should, in theory, head in the long run. It is only a rough guide, because its price reflects non-tradable elements ­such as rent and labor. For that reason, it is probably least rough when comparing countries at roughly the same stage of development.

    It is not meant to be the most precise gauge, but it works as a global standard because Big Macs are global and it's lighthearted enough to be a good introduction for college students learning more about economics. 

    You can read more about the Big Mac index here or read the methodology behind the index here.

  • Here Are Some Links For Your Weekly Reading – September 5th, 2020

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

    Lighter Links:

    Trading Links:

  • I Can’t Believe It’s Not Steak! (Yes, I Can)

    Last week we talked about emerging technologies … not mentioned were emerging technologies in the meat space. 

    Most of us have seen the meat alternatives grow in popularity with vegan sausages, hamburgers & more. In fact, the meat substitute industry is valued at around $5 Billion, and is expected to grow to 8.1 billion by 2026.

    I've tried an impossible burger, and while it's certainly not as good as a hamburger yet – it's better than I expected. 

    The most recent innovation is 3d-printed meat. Yes, you can print steak. Now, 3D bioprinting is still very early in its lifecycle and is primarily being used for medical purposes. Theoretically, down the line, it could be used to create meat that didn't come from a true living animal. 

    Today, however, an Israeli start-up is printing plant-based steaks that supposedly match the taste and texture of steak better than alternatives. 

    5f50f7be7ed0ee001e25d397via Reuters

    Supposedly, 3D printing allows you to better capture the muscle, blood, and fat that characterizes real meat. 

    These steaks are expected to be available at high-end European restaurants before the end of the year … Would you try one?

    Perhaps the most important question, if you could eat a steak that didn't come from a cow, but you couldn't taste the difference, would you be willing to switch?

    At some point, I think it is likely for practical sustainability issues.

    We live in interesting times!

  • Gartner’s 2020 Hype Cycle For Emerging Technologies

    Each year, I share an article about Gartner's Hype Cycle for Emerging Technologies. It's one of the few reports that I make sure to track every year. It does a good job of explaining what technologies are reaching maturity, but which technologies are being supported by the cultural zeitgeist. 

    Technology has become cultural. It influences almost every aspect of every-day life, and it's also a massive differentiator in today's competitive landscape. 

    Sorting through which technologies are making real waves (and will impact the world) and which technologies are a flash in the pan, can be a monumental task. Gartner's report is a great benchmark to compare reality against. 

    2019's trends lead nicely into 2020's trends. While there have been a lot of innovations, the industry movers have stayed the same – advanced AI and analytics, post-classical computing and communication, and the increasing ubiquity of technology (sensors, augmentation, IoT, etc.). 

    What's a "Hype Cycle"?

    As technology advances, it is human nature to get excited about the possibilities and to get disappointed when those expectations aren't met. 

    At its core, the Hype Cycle tells us where in the product's timeline we are, and how long it will take the technology to hit maturity. It attempts to tell us which technologies will survive the hype and have the potential to become a part of our daily life. 

    Gartner's Hype Cycle Report is a considered analysis of market excitement, maturity, and the benefit of various technologies.  It aggregates data and distills more than 2,000 technologies into a succinct and contextually understandable snapshot of where various emerging technologies sit in their hype cycle.

    Here are the five regions of Gartner's Hype Cycle framework:

    1. Innovation Trigger (potential technology breakthrough kicks off),
    2. Peak of Inflated Expectations (Success stories through early publicity),
    3. Trough of Disillusionment (waning interest),
    4. Slope of Enlightenment (2nd & 3rd generation products appear), and
    5. Plateau of Productivity (Mainstream adoption starts). 

    Understanding this hype cycle framework enables you to ask important questions like "How will these technologies impact my business?" and  "Which technologies can I trust to stay relevant in 5 years?"

    That being said – it's worth acknowledging that the hype cycle can't predict which technologies will survive the trough of disillusionment and which ones will fade into obscurity. 

    What's exciting this year?

    Before I focus on this year, it's important to remember that last year Gartner shifted towards introducing new technologies at the expense of technologies that would normally persist through multiple iterations of the cycle. This points toward more innovation and more technologies being introduced than in the genesis of this report. Many of the technologies from last year (like Augmented Intelligence, 5G, biochips, the decentralized web, etc.) are represented within newer modalities. 

    It's also worth noting the impact of the pandemic on the prevalent technologies. 

    For comparison, here's my article from last year, and here's my article from 2015. Click on the chart below to see a larger version of this year's Hype Cycle.

    Zz1lNWZiNWRjMmRlNWIxMWVhYjFjMjBlNjhjZDJlOWEzMw==

    via Gartner

    This year's ~30 key technologies were selected from over 2000 technologies and bucketed into 5 major trends:

    • Composite Architectures represent the organizational shift to agile and responsive architectures due to decentralization and increased volatility. Emphasis is on modularity, continuous improvement, and adaptive innovation to respond to changing market conditions (like in trading, or in businesses rapidly shifting to remote). Sample technologies include embedded AI and private 5G
    • Algorithmic Trust is a direct result of increasing data exposure, fake news, and biased algorithms. As a result, technologies have been built to "ensure" identities, privacy, and security. A great example is more technologies being created on the blockchain. Other examples include explainable AI and authenticated provenance
    • Beyond Silicon is in its infancy, but represents the limitations of Moore's law and the physical of silicon. This has led to new advanced materials with enhanced capabilities being used, and other simple materials being used. Examples of this technology can be seen in  DNA computing and storage, quantum computing, and biodegradable sensors. 
    • Formative AI is the shift towards more responsive AI; models that adapt over time and models that can create novel solutions to solve specific problems. Sample technologies include generative AI, self-supervising learning, and composite AI. 
    • Digital me represents the integration of technology with people, both in reality and virtual reality. Past hype cycles have introduced implants and wearables, but the potential applications of the technology are growing, especially in response to social distancing.  Examples are health passports, Two-way BMI, and social distancing technologies. 

    I'm always most interested in the intersection of AI and advanced analytics. This year, it looks like many of the fledgling AI technologies have become integrated and more advanced. Much like the formative years for children, formative AI represents a new era in AI maturity. Models are becoming more generalized, and able to attack more problems. They're becoming integrated with human behavior (and even with humans as seen in digital me). 

    As we reach new echelons of AI, it's actually more likely that you'll see over-hype and short-term failures. As you reach for new heights, you often miss a rung on the ladder… but it doesn't mean you stop climbing. More importantly, it doesn't mean failure or even a lack of progress.  Challenges and practical realities act as force functions that forge better, stronger, more resilient, and adaptable solutions that do what you wanted (or something better).  It just takes longer than you initially wanted or hoped.

    To paraphrase a quote I have up on the wall in my office from Rudiger Dornbusch … Things often take longer to happen than you think they will, and then they happen faster than you thought they could. 

    Many of these technologies have been hyped for years – but the hype cycle is different than the adoption cycle. We often overestimate a year and underestimate 10. 

    Which technologies do you think will survive the hype?

  • Here Are Some Links For Your Weekly Reading – August 30th, 2020

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

    Lighter Links:

    Trading Links:

  • Turning Thoughts Into Things

    Well done is better than well said – Benjamin Franklin

    Turning thoughts into things is an important skill set to understand.

    Visionaries tend to spend a lot of their time exploring the future. In and of itself, this is neither good nor bad.

    If you generate a lot of ideas (but don't properly cultivate and structure them) those ideas can easily become a distraction to you and your team. 

    When properly managed and pursued methodically and purposefully – those same ideas become the catalyst for massive progress. 

    There are three main ways, I believe you can make thoughts into things:

    • Focus Your Energy – People often focus more on what they don't want, rather than on what they do want. By directing your energy and focus toward opportunities and possibilities, it becomes a lot more likely that you will recognize and take advantage of opportunities and possibilities when they appear or occur. 
    • Imagine Your Future – One of my favorite quotes is " the best way to predict the future is to create it." Abraham Lincoln originally said it, but I've thought or said it enough it feels like mine to me.  By deeply imagining the future you want to call into existence, and thinking about it with that end in mind, it becomes easier to imagine the intermediary goals or milestones needed to reach your desired goals.  The basic outline brings order to the chaos … and the strategies and tactics needed come from the finer distinctions you make thinking about each part (or what is needed to reach the next milestone).
    • Make It Tangible – Name it!  Naming something is powerful. Whether it's a product in your business, a concept, or a goal. Making it tangible solidifies it in your mind, and in the mind of others.  Think about what happens if you reach it (and what would happen if you fail).  Come up with the criteria that provides evidence of success.  What would it look like?  How would it perform?  What does it make possible? What would it prevent? How would it impact key measures of efficiency, effectiveness, or certainty?  What can you do about it now?

    Ultimately, each of these ideas is entirely dependent on the actions you're willing to take. And how decisive you can be. 

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    What aren't you doing because you're overthinking it? Are there opportunities you are missing simply because you aren't looking for them?

    Onwards!

  • Data Really Is Beautiful

    I think most data scientists or traders would agree that some charts are just prettier than others.

    Whether it's due to the artistry of the creator, the results shown, or an insight or perspective illuminated … I am sometimes surprised by the beauty of a chart. 

    After looking at thousands of charts, some really do look "pretty" and others look "ugly" to the trader.  Perhaps this stems from an intuition honed through many trials of separating luck from skill?

    Taking a different approach is Stoxart, created by a visual designer at Nike named Gladys Orteza.  She has been turning stock charts into landscape artworks related to the company they reference.  All that's missing is the warning that past performance doesn't guarantee future results.

    Here is an example of her art inspired by Ford's performance in the last year.  Maybe she should have titled it "Sunset".

    Rbdvb8qjsog51via LLMoonJ

     Another fun one is a year of Tesla performance. 

    Bl7sl41e7ff51via LLMoonJ

    Here's a link to see more Stoxart.