Market Commentary

  • The Most Hyped Technologies of The 2000s

    The Hype Cycle provides the raw material for some of my favorite posts every year.

    In general, 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 one of my favorites.  It 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?"

    Another methodology uses frequency analysis to identify the "most hyped" concepts and technologies.  

    VisualCapitalist recently put together an infographic highlighting the most hyped technologies of each year. They call it the "Peak of Inflated Expectations".

     Screen Shot 2020-01-17 at 4.03.00 PM 2(Click To See Full Infographic) via VisualCapitalist

    Here's a Summary of the most hyped technologies, by year, since 2000.

    • 2000 – Wireless Web, ASPs, Bluetooth
    • 2001 – Web Services, Enterprise IM, m-Commerce
    • 2002 – Biometrics, Grid Computing
    • 2003 – Process Portals
    • 2004 – Micro Portals, Virtual Content Repositories
    • 2005 – P2P VOIP, Biometric ID Documents, BPM Suites
    • 2006 – Mashup, Web 2.0 
    • 2007 – Legal P2P, Digital Video Broadcasting
    • 2008 – Green IT
    • 2009 – Cloud Computing, e-Book Readers, Social Software Suites
    • 2010 – 4G Standard, Activity Streams
    • 2011 – Internet TV, NFC Payment, Augmented Reality
    • 2012 – BYOD, 3D Printing, Complex Event Processing
    • 2013 – Big Data, Gamification, Wearable User Interfaces
    • 2014 – IoT, Natural-Language Question Answering, Cryptocurrencies
    • 2015 – Speech-To-Speech Translation, Advanced Analytics, Autonomous Vehicles
    • 2016 – Blockchain, Cognitive Expert Advisors, Machine Learning
    • 2017 – Virtual Assistants, Connected Home, Deep Learning
    • 2018 – Biochips, Digital Twin, Deep Neural Networks
    • 2019* – 5G, AI PaaS, Graph Analytics
      *Missing from the infographic, but updated by Gartner

    As we take our smartphones for granted, it's hard to imagine bluetooth, wireless web, or e-book readers as emerging technologies at this point – but at a time, the lightbulb was an emerging technology. 

    It's also interesting to look at which technologies peaked in a hype cycle, or which now popular technologies don't show up on this list. Despite Virtual Reality being around since the 80's, I expected to see it on this list. 

    Cryptocurrencies, "smart homes", and several older examples are fizzling or burnt out – but that doesn't mean they won't have resurgences. 

    As a reminder, the hype cycle and the innovation/adoption cycle are often on very different time scales. It's very possible that technologies from the early 2000s may still have their heyday. 

    What are you surprised wasn't on the list? And, what do you think is about to get added?

  • Here Are Some Links For Your Weekly Reading – January 19th, 2020

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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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  • Law of Diminishing Returns

    At some point, more of the same stops paying off …

     

    Law of Diminishing Returnsvia Sketchplanations

    Nature (and common sense) reminds us that equilibrium is important. For example, when you exercise too much you get injured, when you drink too much water you get poisoned, etc. 

    This concept applies almost everywhere.

    • It's why diversification is so important in portfolio construction theory. 
    • Or, why you don't want to put all your eggs in one basket (concentrating your risk).
    • And, my favorite, it's also why you shouldn't only eat vegetables.

     

    A related nugget of wisdom from the extreme … too much of a good thing is a bad thing. 

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

    As the Australian wildfires rage on – an inestimable number of animals have died.

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    If you wish to donate to help relief efforts, you can do so with any of these trusted sources. 

     

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

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  • A Debt You Can’t Pay

    The concept of "Debt" can be confusing to a layman. Most people understand what it means when they take on debt with a local bank, but it can be harder to understand the role debt plays in global economics.

    Compounding the confusion, the implications of debt change on a macro level. 

    Many worry that our "excessive" government debt levels impact economic stability, the strength of our currency, and unemployment. The national debt can only be reduced through five mechanisms: increased taxation, reduced spending, debt restructuring, monetization of the debt, or default. 

    The idea behind our current global debt structure is that if two nations are mutually obligated and dependent on each other, they are less likely to go to war. And that has held relatively true so far. Of course, it's not a perfect system, and it can break down, but as yet, it's working compared to previous systems such as the balance of power.

    In some ways, it's fake money, so paying off our debts seems insurmountable. Yet, our economy is reliable so we're allowed to continue borrowing. Debt is also an important part of the economic machine – it can be argued that we wouldn't have money without debt. 

    Ray Dalio created a simple (but not simplistic) and relatively easy to follow 30 minute animated video that answers the question, "How does the economy really work?"  Click to watch.

     

    via Ray Dalio

    To learn more about Dalio's Economic Principles visit: http://www.economicprinciples.org.

    The global economy has hugely increased in size in the last 50 years as developing nations prosper. The average global GDP per capita has gone from ~$1000 to over $10,000 in my lifetime.

    So it makes sense that the amount of debt is also increasing with the size of the money supply required to conduct all the transactions in the global economy.

    The U.S. tops the list with debt to GDP at 104.3% and almost $22 Trillion in debt, but is dwarfed by #2 Japan's debt to GDP rate of 237.1%. 

    World-debt-2019 via Visual Capitalist 

     

    Meanwhle, China has increased its indebtedness by $2 trillion in the last two years. 

    The market is not the economy. Meaning, the performance of markets is not necessarily linked to the performance of the economy (and the converse is true as well). Even though you may be more interested in trading, economics is still important to understand and follow. 

    If one thing is clear, it's that 2020 will be an interesting year for markets and the economy. 

    There is a lot of opportunity in crisis and chaos.

     

  • Growth of the US In 2019 (and into 2020)

    The US economy and its financial markets have proven resilient – if you look at the timeline of our history, there's almost unbridled growth. 

    For all the hiccups, issues, downturns, etc. our economy is enormous and still growing. 

    US-GDP-by-Year-Compared-to-Recessions-and-Events-v7-1600-e87avia howmuch

    In fact, our largest growth came on the backs of the Great Depression and WW2 … it makes sense, but it's a reminder of resiliency.

    Looking at 2019, we've seen volatility, fear, uncertainty – but we've also seen a banner year for the S&P 500, and continued GDP growth. 

    According to visual capitalist, the key sectors for growth this year were semiconductors, credit services, aerospace/defense, electornic equipment, and diversified machinery. Oil, wireless communications, foreign banks, apparel, and foreign telecoms took a hit. 

    Stock-market-winners-losers-2019via Visual Capitalist

    I share these images, not to say we're invincible, or that growth will continue forever, but to say that as we start the new year it's important to be optimistic and keep an eye on what's possible, not what obstacles we may face along the way. 

    Onwards!

  • The Market Doesn’t Care About Trump’s Impeachment

    On Wednesday, Trump became the  third U.S. president in history to be impeached. The Democratic-led House of Representatives passed charges against him for "abuse of power" and "obstruction of Congress." 

    Wednesday was also the day that I learned many of my friends don't understand the impeachment process. Trump has not been removed from office, and with the vote to remove him coming from the Senate (assuming that the parties will vote along lines) it seems unlikely he will be removed. 

    While impeachment still matters – it's essentially a demerit. He's been called to the principal's office – but he hasn't been expelled, and he's still allowed to finish the year and apply for next year. He'll likely finish his first term, and has a chance for a second term. 

    So why go through with the process?

    Democrats hope to convince "moderate" Republicans to vote against party lines, and Republicans believe this is a farce/smear campaign that will only solidify support for Trump and embolden their base.

    Currently, it feels like Nancy Pelosi is going through the motions just to say she went through them. 

    It's a seemingly futile exercise in partisan politics … but it will take until the results of the upcoming Presidential election to truly decide. 

    Regardless, the market currently doesn't care … at all. 

    The Bulls Live On 

    Before impeachment, Trump warned that the stock market would plummet if he was impeached. 

    By the end of Wednesday's regular session, equities had weakened slightly, but all major indexes were trading near all-time highs.

    It makes sense. Republicans and Democrats voted along party lines, and they'll do the same in the Senate. So, there's little reason for the market to worry. 

    M6wsypotwj541via cub3dworld

    Even if some Republicans voted against party lines, the vote needs a 2/3 majority to pass. 

    Markets respond to fear and excitement – and while there's political grandstanding on both sides, nothing really has happened. Even if Trump were removed, Pence would remain a supporter of Trump's policies. 

    In the long-term, this raises questions about who will govern us in the future, what policies will be passed, etc… All things that will influence the market. 

    Time will tell what the results will be, but it feels like we're safe from major political news until Super Tuesday in March. 

  • Hedge Funds: Do Not Go Gentle Into That Good Night

    Hedge Funds – and active managers in general – have been under fire for several years. Almost 50% of Hedge Funds saw a decline in assets under management (AUM) in 2018.

    On the surface, it makes sense … during a long-term bull market, indexes and other passive options like ETFs become en vogue. During a bear market, active management offers more opportunities to outperform the market. 

    Hedge funds are designed to, you guessed it, hedge risk. So, when investors see less risk in indexes, the demand for active management declines. Especially when performance declines as well. 

    Screen Shot 2019-12-06 at 4.30.47 PM

    via Bloomberg

    When something monumental changes the past is left behind and you begin a new future. When electricity was created, no one was going to make candles the primary form of lighting. After the introduction of the car, horses & buggies were never going to be the #1 mode of transportation, and we're also seeing that with the adoption of AI & automation. 

    Most changes aren't monumental.

    I have a fundamental belief that things go in and out of phase and that what's once old is often new again. You see it with fashion, music, phones – etc. First phones got bigger in order to do more, then smaller for convenience, and then larger again so that old dudes like me can read the text. 

    I believe it's the same with active management – the techniques may have gone out of phase – but active management still offers the potential outperformance. The trend mirrors the stock market; bulls turn to bears when buyers run out – so as outflows from funds continue to peak, and funds continue to close, it seems reasonable that there will come a time when demand rises again. 

    At that point, "active management" will give way to "Active Switching™" (which goes beyond stock picking to choose the markets, techniques, time frames, risk levels, allocation strategies, etc. using a variety of techniques, data sources, and real-time contextual clues).

    This is part of what's covered in my upcoming book, "Next On Wall Street: Understanding AI's Inevitable Impact on Trading."

    Looking forward to launching that book in early 2020.

  • Here Are Some Links For Your Weekly Reading – December 8th, 2019

    For a candidate with an "age" issue, not sure if this was a smart move …

     
    191208 No Malarkey

     

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

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  • What Do You Do When AI Beats You?

    When Beethoven was at the peak of his career, several of his contemporaries struggled to deal with the realization that they may never create anything that lived up to his creations. Brahms, for example, refused to make a symphony for 21 years. Schubert is quoted as saying, "Who can ever do anything after Beethoven?"

    We're apparently seeing the same effect via Artificial Intelligence. 

    When it comes to popular AI, not much surpasses the popularity of AI's growing chokehold on gaming. Recently, I've shared about AI winning at video games,  but in 2016 I shared about humans losing to AI in Go for the first time. 

    What it is:  A computer has just beaten the world's best Go player. AlphaGo, a program created by Google-owned AI company DeepMind, beat European Go champ Fan Hui all five times they played in tournament conditions, and also won 99.8% of Go games against other computer programs. Unlike IBM's Deep Blue, which defeated chess champ Garry Kasparov, AlphaGo wasn't programmed to play Go. Instead, as Nature reports, it learned how to play via a general-purpose algorithm that interpreted the game's patterns.

    Why it's important:  AlphaGo's learning technique means it can recognize complex patterns, long-term planning and decision-making: refined skills that were once stricly human in nature. Imagine the possibilities when neural networks like AlphaGo, infinite computing and the 'Internet of Everything' converge.

    via – Google AI Algorithm Masters Ancient Game Of Go – February 2016

    This week, a former Go champion who was beaten by DeepMind retired after "declaring AI invincible." 

    Lee Se-dol quit for a couple of reasons. According to him, even if he's the #1 human, there's an undefeatable entity above him and he felt he had failed his country by losing to the AI. It's an unfair fight – AI plays untold millions of games to learn to play better and it doesn't get tired, bored, sick, distracted.  – we can't do that.

    Much like Beethoven, AI is discouraging competition. 

    Was Lee wrong to quit? It's hard to say, but as AI gets better at more activities, it's an issue we're going to see more often. There's always someone (or something) better – and a purely utilitarian approach isn't necessary or productive. 

    I'm an advocate of intelligently adopting AI, and a believer that the scale of AI's "wins" is going to skyrocket – but I'm also a believer in the idea that "the game isn't over until I win". If I enjoy something, I'm not going to let 2nd place stop me. 

     

    Dc-Cover-652ovhkibhg82kh6on274ihkn1-20180128034206.Medi

     

    The passionate pursuit of a goal is valuable regardless of the result, and bettering yourself at a skill – like Go – may not be a sustainable job, but it can still make a great hobby. 

    AI is coming – but it doesn't have to be joy-sucking. 

    Onwards!