Business

  • “Chart of The Century”: A Look At Inflation, Free Market Forces and Trade Wars.

    This post considers the “Chart of the Century” created and named by Mark Perry, an economics professor and AEI scholar. This chart has gotten a lot of attention because it’s loaded with information regarding the types of challenges faced by the Fed and other Washington policymakers.

    Perry’s most recent version reports price increases from 1998 through the end of 2019 for 14 categories of goods and services along with the average wage and overall Consumer Price Index.

    It shows that prices of goods subject to foreign competition — think toys and television sets — have tumbled over the past two decades as trade barriers have come down around the world. Prices of so-called non-tradeables — hospital stays and college tuition, to name two — have surged.

    From January 1998 to June 2019, the CPI for All Items increased by exactly 59.6% and the chart displays the relative price increases for 14 selected consumer goods and services and average hourly earnings.

    Lines above the overall inflation line have become functionally more expensive over time, and lines below the overall inflation line have become functionally less expensive. So, for example, housing has approximately kept pace with inflation. 

    Cpi2020-875x1024
    Mark Perry Via Carpe Diem

    There are a lot of ways to take this chart. You can point to items in red – whose prices have exceeded inflation as government-regulated or quasi-monopolies. You can point to items in blue as daily commodities that have suffered from ubiquity, are subject to free-market forces, or as goods that are subject to foreign competition and trade wars. Looking at the prices that decrease the most, they’re all technologies. New technologies almost always become cheaper as we optimize manufacturing, components become cheaper, and competition increases.  

    Compare “tradable” goods like cell phones or TVs (with lots of competing products) to less tradable “goods” like hospital stays or college tuition, and unsurprisingly they’ve gone in opposite directions. 

    There are a lot of complex economic relationships displayed in this chart, and we’ve only covered the basics. 

    What did you take from the chart?

    How do you think the Coronavirus will impact the future of policy – and the shape of this chart?

  • 7 Best Practices For Uncertain Times

    Mastery isn't measured by the number of bad things you eliminate …
    but by the number of times you eliminate calling them bad    .

    Many of our biggest innovations or course corrections take place after a seemingly disastrous occurrence. That's why lots of psychologists and self-help gurus encourage people to focus on the hidden gift that many of these experiences provide.

    It's there if you look for it. 

    Examining several instances from my past, Here is a list of the seven steps I use to transform almost any situation.

    Seven Best Practices for Uncertain Times.

    1. Accept Reality: We are where we are. Focus on being complete with what happened before this, and think about this as a new beginning with an even bigger future.
    2. Do Something Positive: Take action and build momentum and confidence. Big wins are great. Yet, in scary times, even small items are worth noting and building upon.
    3. Take Care of Yourself: Increase your physical activity, meditation, and massage. This is the time to eat and sleep well. Many studies show decision-making suffers when you're stressed. Taking care of yourself goes a long way to making a lot of other things better.
    4. Communicate More: The natural tendency is to hide or to recuperate in private. Instead, be open and receptive to help and ideas from friends, partners, or wherever it comes from. (Though you may want to do it digitally with the COVID-19 scares)
    5. Creative Destruction: The old game and the old ways of thinking are over.  Shift your energy to what is working.
    6. Increase Your Options: It often takes a different level of thinking to solve a problem than the level of thinking that got you into the problem. So, be open to new opportunities and new possibilities.
    7. Choose a Bigger Future: Instead of resigning yourself to playing small and doing with less, recognize that the clearing creates space for something even better. Choose what you want, plan it and stick to your process.

    They say everything happens for a reason. The secret is that you get to choose the reason, what it means to you, and what you're going to do about it. Choose well, and someday you could look back on this time as one of the best things that ever happened to you.

  • Dominance of the US

    In light of recent fears, VisualCapitalist put together an infographic on the dominance of US companies in global sectors and industries. 

    Us-companies-market-capitalization-global-sectorsvia VisualCapitalist

    The calculations reflect the market cap of the S&P Global Broad Market Index which tracks more than 11,000 stocks across 50 markets. Not all-encompassing, but a good start.

    To add some numbers to the chart, the US represents

    • 73% of IT
    • 65% of Health care
    • 51% of Real Estate and
    • 44% of Financials 

    China is closing in fast on some of these sectors, but the U.S. is still the world leader.  

  • Here Are Some Links For Your Weekly Reading – March 1st, 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:

  • Mountains Out of Molehills: Media Inflammation

    The U.S. stock market had a rough week (like most markets around the world). The Dow Jones Industrial Average (the "Dow") had one of its worst weeks since the financial crisis in 2008, losing about 12%.

    Still, the Dow is near its historical highs, and the fundamentals of our economy aren't in freefall (as one might guess with all the fearmongering). 

    As I mentioned last week, many attribute the drop to the Coronavirus and its potential effect on trade, travel, industry, etc.  For example, several prominent news sources released (hopefully erroneous) articles stating that 38% of beer drinkers wouldn't drink Corona due to the Coronavirus.  Yup!

    There are two key points I want to make. The first is that the media tends to make mountains out of molehills (because their job is to get you to pay attention to their news) and the second is that markets are random to you or me. 

    Mountains Out of Molehills

    It shouldn't come as a surprise to you that the media exacerbates situations. Whether it's a terrorist attack, a virus scare, or a bad trading day – the media posts headlines and teasers designed more to attract attention than to educate. 

    The interactive graphic below shows the news cycle for things ranging from asteroids and vaccines to ebola and zika.  An interesting reminder.

    Screen Shot 2020-03-01 at 8.26.59 PM(Click To View Interactive Infographic) via InformationIsBeautiful

    The result is hysteria, fear and greed, or discretionary mistakes … all things better avoided. 

    Regardless, when it comes to trading, if you don't know what your edge is … you don't have one.  And it's tough to find a "signal" in a sea of noise. 

    Screen Shot 2020-03-01 at 8.22.22 PMvia Gaping Void

    Markets Are Random

    Experienced traders have a saying: it isn't the news that matters … what matters is the reaction to the news.  Consequently, part of the reason that markets seem random is that you or I can't predict the market's changes (accurately and reliably) based on the information we have.  In other words, if market profits were easily captured by being smart and well informed, professors wouldn't teach because they'd be on their yachts. 

    This past week,  you could attribute the losses to fear of the Coronavirus … but there are also fears around the 2020 election, the fact that stocks were already considered overvalued, fears of recession, and more.

    You don't know how much was caused by program trading or bots reacting to bots – or by a host of less obvious potential causes or contributing factors, like businesses either liquidating or taking positions in the regular course of their business (meaning as bona fide purchasers rather than speculators).

    The truth is no one knows for sure what caused the drop.

    Nonetheless, one thing that you should know is that volatility and noise will increase.  It is almost inevitable.

    Screen Shot 2020-03-01 at 8.44.56 PM

    Humans have a need for certainty and understanding. So when we don't know why something happens we find stories to fill in those gaps. But they're just that … They're stories. We can theorize all day long about what's moving the market, but it makes no difference.

    It's not what happens that matters, it is what you do that matters. 

    Onwards!

  • Coronavirus Tracker

    Fears around the Coronavirus continue to mount. Quarantine of the superbug has been tough … the disease shows up in more countries every week, and the death toll is likely being underreported in China. 

    That being said, the death toll compared to the "recovered" toll should give you hope that if you're relatively healthy and get proper treatment, your survivability rate is very high.

    Here is an interactive tracker if you're curious to see a visual representation of it's spread.

     

    Screen Shot 2020-02-22 at 1.03.14 PM

    1hakr via Visualist.io

    Keeping yourself at a low risk of contraction is pretty simple. You know what you need to do to avoid it, but, as a reminder: wash your hands, don't share food/drinks with strangers, avoid touching your face, and don't go to China till you believe the "all clear."

    How do you believe this will affect the markets and economy?

  • Here Are Some Links For Your Weekly Reading, February 23rd, 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:

  • Is China Going to Overtake the US In Artificial Intelligence?

    Currently, the US has a stronghold on Data Science and Artificial Intelligence (collectively, "AI") innovations and advancements.

    Meanwhile, China has been creating more papers than other countries about their AI advancements and innovation … however, a closer examination of the research suggests that many of their papers are of low quality, misleading, or even fraudulent. 

    Will China overtake the US in AI supremacy? If you look at their population along with their government's intent and directive towards AI leadership, it seems possible. 

     

    via TheDataScientist

    On a superficial level, I believe that the majority of advances in AI will prove to be beneficial – but there needs to be a balance between the promise and the peril of un-checked or un-regulated AI.  In other words, AI ethics, patriotism, and global balance of power considerations apply to a powerful force likely to terraform the planet.

    Absolute power has been shown to corrupt … I worry about the types of AI applications powerful nation-states will focus on, and whether they'll be truly forthcoming with breakthroughs or whether we are approaching a new cold war based around AI and Quantum Supremacy. 

    When you're doing something new and groundbreaking, it's human nature to want to keep it to yourself. It seemingly protects your interests, it prevents competition, obstruction or poaching. As well, AI is going to create an enormous impact on economic development, the nature of work, and competitive dynamics, so many governments are rushing to establish interest, education programs, and AI frameworks within their borders.

    Screen Shot 2020-02-22 at 1.42.27 PMvia Deloitte Insights

    AI Isn't a Zero-Sum Game (Unlike Trading)

    The reality is that AI has the chance not only to transform industries but societies as well. The benefits of properly executed AI are far-reaching and global. 

    When you share, maybe not the individual application, but the over-arching lesson or breakthrough, you enable all adopters to learn and grow. 

    Internally, in starting to write my book – Next on Wall Street – I spend a lot of time talking about our approach to building the right workforce, using the right data,  overcoming challenges, approaching AI from the right perspective, and, of course, using the right tools. 

    Collaboration is an important engine for creation. Having a lead is important … but at the beginning of a long journey, making progress and building momentum is crucially important.

    Screen Shot 2020-02-22 at 1.44.01 PMvia Deloitte Insights

    AI has a lot of green fields ahead. 

    Onwards!

  • Ending The World With A Paperclip

    Every week I send out an e-mail on Fridays with 20 light links and 20 market-moving links. If you're not getting that e-mail, you can sign up here. On Sundays, I send out our weekly commentary (which this article is a part of, along with 5 new light links and 5 new market-moving links (you can sign up here).

    My son sees the links before they're posted. He was interested in one of this week's links – The Way the World Ends: Not with a Bang But A Paperclip. 

    As a result, he played the game Paperclips to completion.  While he characterizes it as “wasting a whole night,” I think it gives us insight into the addictive nature of clicker games and into how the world as we know it could end with a paperclip. 

    There are spoilers ahead, so if you intend on wasting three hours on a browser game, you may want to skip this article … no, you're good? OK, here it is. 

    Screen Shot 2020-02-03 at 1.39.21 PMFrank Lantz via Decision Problem

    The game starts with you clicking a button to create paperclips but quickly spirals from there. Through setting up automation to create paperclips and then to have it start automatically buying the wire for you, you begin focusing on other projects – specifically creating a better trading algorithm to leverage the money you're making and improving your company's AI and Quantum Computing capabilities. 

    Hmm, starting to sound familiar …

    Initially, your AI is focused purely on maximizing paper clip demand and production.  It can increase marketing to increase demand and make your autoclippers more efficient to produce more paperclips per unit wire. If you look at the projects in the above screenshot you can see projects like: 

    • Full Monopoly – Establish full control over the worldwide paperclip market
    • Global Warming – A robust solution to man-made climate change
    • HypnoDrones – Autonomous aerial brand ambassadors

    Projects like curing cancer or solving global warming gain trust and allow you to invest more money in processors and memory (which end up setting you up to take over the world.)

    Fast forward to Zach beating the game …

    Screen Shot 2020-02-03 at 2.23.47 PMFrank Lantz via Decision Problem

    When you release the HypnoDrones all of the resources become available for Paperclip production, and you gain full autonomy. Your inner benevolent dictator feels satisfied and your mother’s expectations for your potential are partially fulfilled.

    At this point in the game, Zach had created less than half a billion paperclips but was worth several billions of dollars. It took him 2 hours and 44 minutes to beat the game. 

    Is it a game, a parable, a prediction – or an advanced intelligence’s test of human nature?

     

  • Here Are Some Links For Your Weekly Reading – February 16th, 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: