Capitalogix

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

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

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

• The Australian Red Cross
• GIVIT - Donating Essential items to Victims
• St. Vincent De Paul Society
• The Nature Conservancy Australia

 

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

Lighter Links:

• 20-year-old McDonald's Burger Still Looks Brand New, Smells like Cardboard. (FoxNews)
• Japanese Woman Turns 117 Years Old, Extends Record as World's Oldest Person. (Reuters)
• China Quietly Confirms a Third CRISPR-Edited Baby Has Been Born. (ScienceAlert)
• Pope Francis Apologizes for Losing His Patience after Slapping Woman's Hand. (FoxNews)
• Fresh Cambridge Analytica Leak Shows Global Manipulation is Out of Control'. (TheGuardian)

 

Trading Links:

• Jeff Bezos is Still the Richest Person in the World. (CNN)
• 4 High-Potential Sectors for AI and ML Startup Success. (Readwrite)
• Tesla Delivered 367,500 Cars Last Year. (CNN)
• The Market Surged Last Year. Don't Expect the Same in 2020. (New York Times)
• It Was a Dismal Year for Hedge Funds: Here Are 2019'S Fund Closures and Family-Office Conversions. (ZeroHedge)

 

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%. 

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.

 

A Serendipitous Moonshot

Hope you’re enjoying the New Year!

On January 2^nd, 2020,  after many years of hard work, we launched the Capitalogix Absolute Return Fund.

It’s been a long and hard road ... but also a labor of love.

On a related note, I’ve talked about moonshots, playing a different game, and getting comfortable being uncomfortable.   These themes come up because they define what we do at Capitalogix and what was necessary to create the technology platform that runs the fund. 

Speaking of getting comfortable being uncomfortable, I spent the last week on a family cruise through the Caribbean.  

 

 

We celebrated many important events including my mother’s 80^th birthday, my sister’s 50th birthday, and Jennifer and my 12^th wedding anniversary.

We happened to be in Grand Cayman on January 2^nd, the day fund launched.

  

 

I had a chance to stop by Walker’s (our fund lawyers) to commemorate the day with them as well.

 

 

It was a great start to my year!

Let me know how your year started too.

 

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. 

via 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. 

via 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!

Playing Small To Play Big

In my office, there's a series of artwork I had commissioned from GapingVoid. One important piece states that "wisdom comes from finer distinctions". 

 

 

The more nuance you can capture, from less, the better – think Sherlock Holmes's perceptiveness compared to a normal police officer or detective. He noticed things others didn't and came to conclusions that others couldn't.

The best detective isn't necessarily the one who looked at the most stuff.  It might be the one that was clever enough to ignore the wrong stuff (which led to being able to discern the right answer in less time). 

The same concept applies to AI and data. More isn't always better.

The evolution of mastery requires gaining more from a dataset. 

 

Vishal Chatrath via Codex

Don't get me wrong - data is a precious commodity, and more (and different) data is often better - but it means much less when you're not using it right. 

 

More Data = Less Visibility

We're living in the best era (so far) but people are increasingly frustrated and unhappy. They're less happy in their relationships, they're less happy in their jobs, and they're more depressed than recent generations.

Comparison is the Thief of Joy 

It's too easy to say it's because they're "snowflakes", but it makes sense. They're surrounded by people yet have less meaningful connections due to so much of it being "online".  They see everyone's highlight reels and feel like they can't live up. They're inundated with media from all directions and they have infinite options in our hyperconnected society. 

Data is exhausting. Choice is exhausting. It's the reason willpower doesn't work, and it creates anxiety and lack of movement. 

It's the same with data - the more data an AI has to sift through the harder is to separate the signal from the noise. It's why daily optimization is harder than monthly optimization. 

That doesn't mean that there's not value in more data (or in daily optimization) - but it means you need to be calculated about it. 

It needs to be built on solving the right problem.

 

We Don't Have More Problems Than Ever, We Have More Complex Problems

As a society, we've solved so many of the low hanging fruit that we're having to solve more complicated problems. From a theory of constraints viewpoint, we've fixed a lot of life's bottlenecks and we're now dealing with the real underlying issues. 

Solving for the "local optima" is fixing a symptom - we have to look for the global optima and solve for the disease. 

Today, I'd rather have a 10-layer algorithm than an algorithm that looks at 10 datasets ... creating finer distinctions. 

 

Sparse Data + Agile Decision Engine = Better Outcomes 

You'll get a better outcome by focusing on answering the right question with the right datasets than by throwing a mountain of data at a random neural net. 

Scale matters, but is secondary. It's built on the back of finer distinctions. 

The more noise you can remove before feeding information to an algorithm the better.

It seems simple - but that's the game, and it's the one most aren't playing. 

I See You

It feels like we're always being watched, right?

It's not just me?

From governments, to Google, to Facebook ... it feels like it's impossible to have any expectation of privacy today. Amazon knows what I want before I do. 

This is an issue that cuts both ways. On the one hand, increased surveillance means we are arguably safer – because the digital omniscience makes it harder to get away with crimes ... but all this extra data on us makes it easier to commit other crimes and to suffer from the increasing lack of privacy. 

Paul Bischoff via Comparitech

Unsurprisingly, 8 of the top 10 most-surveilled cities in the world were in China. It's even less surprising with the Hong Kong protests and the new social credit system. 

My eldest son spent several years focused on cybersecurity. One of his "warnings" was that everyone's been hacked - not everyone has been targeted. 

I find that somewhat comforting. 

If everyone's information is out there, that's a lot of noise to sift through. 

Still, this is one of the issues that will be increasingly important.  Big Data with an AI parser creates a new set of promises and perils.

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. 

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 ...

 

 

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

Lighter Links:

• Don't Apologize for Having High Standards. (LinkedIn)
• Automation is Not Intelligence. (Forbes)
• How to Talk to Aliens. (Economist)
• 52 Things I Learned in 2019. (Medium)
• McLaren Unveils $1.7 Million Supercar with No Roof and a Windshield Made of Air. (CNN)

 

Trading Links:

• When to Buy into Aramco. (Wall Street Journal)
• How Spices Have Made, and Unmade, Empires. (New York Times)
• The First New US Airport since 2010 is in North Dakota's Oil Country. (TPG)
• This Widening Crack in the Mortgage Market Could Sink U.S. Home Prices. (MarketWatch)
• One Man's Quest to Challenge Wall Street With a New Silicon Valley Stock Exchange. (Telegraph)

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 2^nd place stop me. 

 

 

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! 

 

Here Are Some Links For Your Weekly Reading - December 1st, 2019

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

Lighter Links:

• How Artificial Intelligence and Machine Learning is Changing Medicine. (NewsNetwork)
• The Lines of Code that Changed Everything. (Slate)
• Why All Birds CEO Just Asked Amazon to Steal Its Idea. (Inc)
• Storytelling is a Powerful Communication Tool Here's How to Use It, from TED. (Ideas)
• 3,000-Year-Old Tablet Describing Babylonian Noah's Ark Tale Could Be 'Earliest Ever Example of Fake News,' Scholar Says. (FoxNews)

 

Trading Links:

• Eyeing Presidential Bid, Michael Bloomberg Makes Big Television-Ad Buys. (Wall Street Journal)
• This Invisible Company Powers Almost the Entire Finance Industry. (Forbes)
• Malls are Dying. the Thriving Ones are Spending Millions to Reinvent Themselves. (Washington Post)
• These Maps Show How Many People Will Lose Their Homes to Rising Seas – And It's Worse Than We Thought. (Popular Science)
• Billionaire Hedge Fund Manager Ray Dalio Says the Economy Isn't Growing Because 'The World Has Gone Mad'. (CNBC)