Sunday, August 13, 2017

As U.S. and North Korea Tensions Continue

  • Last week, comments and tweets from U.S. President Donald Trump included, "North Korea best not make any more threats to the United States …
  • "They will be met with fire and fury like the world has never seen. He has been very threatening ... and as I said they will be met with fire, fury and frankly power, the likes of which this world has never seen before.
  • "Military solutions are now fully in place, locked and loaded, should North Korea act unwisely. Hopefully Kim Jong Un will find another path!
  • “There were no mixed messages,The people of our country are safe. Our allies are safe. And I will tell you this, North Korea better get their act together or they’re going to be in trouble like few nations ever have been in trouble in this world.”

  • A statement from the Government of North Korea said, “The KPA Strategic Force is now carefully examining the operational plan for making an enveloping fire at the areas around Guam with medium-to-long-range strategic ballistic rocket Hwasong-12 in order to contain the U.S. major military bases on Guam including the Anderson Air Force Base”  
  • Geng Shuang, Foreign Ministry spokesman for the People’s Republic of China said “The current situation on the Korean Peninsula is complicated and sensitive … 
  • China hopes that all relevant parties will be cautious in their words and actions, and do things that help to alleviate tensions and enhance mutual trust, rather than walk on the old pathway of taking turns in shows of strength, and upgrading the tensions.”
  • German Chancellor Angela Merkel said, "I believe that, am firmly convinced that an escalation of rhetoric will not contribute to a solution of this conflict,
  • "I do not see a military solution to this conflict, rather I see continuous work, like we have seen in the U.N. Security Council with members with resolutions in view of North Korea, and above all very close cooperation with affected countries, especially the United States and China, but also South Korea, of course Japan ...
  • "Germany will be intensively involved with potential solutions that we see, not of a military manner. But the escalation of rhetoric I hold as the wrong answer,"
  • Guam's Homeland Security Department released the two page handout “In Case of Emergency — Preparing for Imminent Missile Threat” with recommendations including 
  • Do not look at the flash or fireball — It can blind you …  
  • "Lie flat on the ground and cover your head. If the explosion is some distance away, it could take 30 seconds or more for the blast wave to hit … 
  • "If practical, place your contaminated clothing in a plastic bag and seal or tie the bag. Place the bag as far away as possible from humans and animals so that the radiation it gives off does not affect others.”
  • Notes: Guam is a U.S. territory with a population of about 162,000 people and is theoretically within range of a North Korean Hwasong-12 rocket.

  • It seems in everyone's interest to reduce the heated rhetoric and pursue diplomatic channels.  
  • Over the years, Trump has made several comments about nuclear weapons, but his comments this week seem like a rookie presidential mistake which may diminish his effectiveness in engaging with North Korea in the future. Note: U,S. President Obama made a similar (drawing a red-line) mistake while addressing conflicts in Syria.
  • It is likely that Trump's "saber rattling" with North Korea, and comments such as "We have many options for Venezuela, including a possible military option, if necessary," are provided as a distraction from U.S. domestic issues and investigations.

Sunday, August 6, 2017

Investment Views: The Good, the Bad, the Impossible

  • Last week, Alan Greenspan, former Chairman of the U.S. Federal Reserve chairman said, “By any measure, real long-term interest rates are much too low and therefore unsustainable… 
  • "When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace … 
  • "The real problem is that when the bond-market bubble collapses, long-term interest rates will rise … 
  • "We are moving into a different phase of the economy -- to a stagflation not seen since the 1970s. That is not good for asset prices."
  • Separately, Nouriel Roubini, a professor at NYU’s Stern School of Business and a Senior Economist at the White House during the Clinton Administration said, “the main puzzle is the disconnect between the performance of financial markets and the real [economy] ... 
  • "While stock markets continue to reach new highs, the US economy grew at an average rate of just 2% in the first half of 2017 – slower growth than under President Barack Obama – and is not expected to perform much better for the rest of the year ... 
  • "It is little wonder that actual and potential growth is stuck at around 2%. Yes, inflation is low, and corporate profits and stock markets are soaring. But the gap between Wall Street and Main Street is widening. 
  • "High market valuations that are fueled by liquidity and irrational exuberance do not reflect fundamental economic realitiesAn eventual market correction is inevitable. The only question is whom Trump will blame when it happens.”
  • Finally, Jim Paulsen, a Leuthold Chief Investment Strategist (formerly with Wells Capital) said the stock market "has an awful good gig going …
  • "We've got a fully employed economy, rising real wages. We restarted the corporate earnings cycle. We've got strong confidence among business and consumers … 
  • "The kick is we can do all of this without aggravating inflation and interest rates, If that's going to continue, I think the bull market could continue to forever … 
  • "Ultimately the bull market does continue until we aggravate some inflation, and until we have to raise bond yields and interest rates some more … 
  • "I think that's going to happen eventually, but it doesn't look like it's going to happen anytime soon. So I think the bull probably continues through the end of this year."

  • Regarding Greenspan’s comments -  Given that equity markets may have benefited from a multi-decade trend of declining interest rates, it is unclear that a rapid rise in interest rates could also be good for stock markets.
  • Regarding Roubini's comments – His concern that the stock market does not “reflect fundamental economic realities” is somewhat valid  but factors driving stocks include liquidity (which he says there is too much of) but also increasing corporate profits (which come from revenue growth, cost cutting, financial engineering and tax cuts).  However,  depressed wage growth can contribute to corporate profits while also widening the gap between Wall Street and Main Street.
  • Regarding Paulsen’s comments -  he is generally bullish on the U.S. equity market, but his comment that “the bull probably continues through the end of this year” seems more appropriate (but perhaps too bullish) than his enthusiastic comment that “the bull market could continue to forever.

Sunday, July 30, 2017

On Crypto-currencies, the S.E.C., Howard Marks and more

  • Last week, the U.S. Securities and Exchange Commission said it “is aware that virtual organizations and associated individuals and entities increasingly are using distributed ledger technology to offer and sell instruments such as DAO Tokens to raise capital. These offers and sales have been referred to, among other things, as “Initial Coin Offerings” or “Token Sales.” … 
  • "Those who offer and sell securities in the United States must comply with the federal securities laws, including the requirement to register with the Commission or to qualify for an exemption from the registration requirements of the federal securities laws. The registration requirements are designed to provide investors with procedural protections and material information necessary to make informed investment decisions. These requirements apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology… 
  • "Distributed ledger and other emerging technologies have the potential to influence and improve the capital markets and the financial services industry. Interest in and funding for these technologies appears to be growing at a rapid pace. We welcome and encourage the appropriate use of technology to facilitate capital formation and provide investors with new investment opportunities. We are particularly hopeful that innovation in this area will facilitate fair and efficient capital raisings for small businesses. We are also mindful of our obligation to protect investors and recognize that new technologies can offer opportunities for misconduct and abuse."
  • Separately, Howard Marks (manager of $99 billion in assets at Oaktree Capital) said, “it is my firm view that the ability of these [digital currencies] to gain acceptance is just one more proof of the prevalence today of financial naiveté, willing risk-taking and wishful thinking … 
  • "In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it. But this isn’t the first time. The same description can be applied to the Tulip mania that peaked in 1637, the South Sea Bubble (1720) and the Internet Bubble (1999-2000)."

  • It is likely that some (perhaps many) organizations currently pursuing an Initial Coin Offering (ICO) strategy will need to comply with SEC regulations if their tokens are sold and/or purchased within the U.S.
  • While still at an early stage of their evolutiondigital/virtual/crypto currencies along with distributed ledger and “smart contract” technology represent the next stage in how we purchase and exchange products and services.
  • However, long-term success will require 1) executing transactions in a secure and timely fashion, 2) providing services that are easy to use and access, 3) adapting to a growing community of users, 4) addressing the challenges of cyber-crime, 5) complying with various laws and regulations and 6) confronting competition from incumbent financial players as well as payment service introductions by firms such as AlibabaAmazonAppleGoogleFacebookPayPalSquareTencent and others.
  • Regarding Howard Mark’s comments – His concerns about  “financial naiveté, willing risk-taking and wishful thinking” in today's market seem valid.

Sunday, July 23, 2017

Busted on the Dark Web

  • Last week, the U.S. Department of Justice announced “the seizure of the largest criminal marketplace on the Internet, AlphaBay, which operated for over two years on the dark web and was used to sell deadly illegal drugs, stolen and fraudulent identification documents and access devices, counterfeit goods, malware and other computer hacking tools, firearms, and toxic chemicals throughout the world.
  • The international operation to seize AlphaBay’s infrastructure was led by the United States and involved cooperation and efforts by law enforcement authorities in Thailand, the NetherlandsLithuaniaCanada, the United Kingdom, and France, as well as the European law enforcement agency Europol
  • AlphaBay operated as a hidden service on the “Tor” network, and utilized cryptocurrencies including BitcoinMonero and Ethereum in order to hide the locations of its underlying servers and the identities of its administrators, moderators, and users. Based on law enforcement’s investigation of AlphaBay, authorities believe the site was also used to launder hundreds of millions of dollars deriving from illegal transactions on the website.
  • Separately, the Netherlands Police said “As part of an extensive international investigation, the Netherlands Police and the Public Prosecution Service have dismantled, seized control of, and shut down one of the biggest illegal market places on the internet today. It is Hansa Market, currently the most popular dark market in the ‘anonymous’ part of the internet, the so-called darknet … 
  • The investigation in question is being carried out in close cooperation with the police and judicial authorities in GermanyLithuania, and the United States, and also with Europol.
  • This week, a Hansa top-seller was arrested in Krimpen aan den IJssel, the Netherlands. Accounts with a total of more than 1,000 bitcoins, representing a value of some two million euros, were seized. The bitcoins were transferred to an account of the Public Prosecution Service. 
  • The darknet markets enable large-scale trading in chiefly illegal goods, such as drugs, weapons, child pornography, and ransom software.
  • Well-known examples of such market places are Silk Road (taken down by the FBI in 2013) and Alpha Bay (shut down within the framework of an international police operation earlier this month).
  • No weapons or child pornography were sold on Hansa Market."
  • Note: Tor is free software used to provide anonymous on-line communication. It is based on technology developed by the United States Naval Research Laboratory and DARPA to provide secure network communications for U.S. intelligence efforts. Users include journalists corresponding with confidential sources and citizens in repressive regimes accessing content on the Internet.
  • Suppliers of illegal goods (mostly drugs) will adapt  to the efforts of law enforcement - and the dark web (and postal services) will remain a part of their sales and distribution process
  • Effectively addressing the illegal drug problem will remain a challenge and will require a stronger focus of what drives demand.
  • Uses of Tor and other encryption based technologies will continue to expand  - and will support of both legal and illegal activities.
  • Debates over digital privacy rights and appropriate use will continue.

Sunday, July 16, 2017

On the Opioid Epidemic in the United States

  • Last week, comments in the report “Pain Management and the Opioid Epidemic” from the National Academy of Sciences included:  “Rates of opioid use disorder and opioid overdose deaths have reached unprecedented levels over the past two decades, and have risen much faster in the United States than in most other countries …  
  • U.S. Department of Health and Human Services data suggest that at least 2 million Americans have an opioid use disorder involving prescribed opioids and nearly 600,000 have an opioid use disorder involving heroin ...
  • about 90 Americans dying every day from overdoses that involve an opioid … 
  • the professional societies, insurers, health care organizations, pharmaceutical manufacturers, and state and federal agencies collectively responsible for shaping prescribing practices should attend to the multiple weaknesses in the nation’s health system that led to this epidemic …  
  • Trends indicate that premature deaths associated with the use of opioids are likely to climb and that opioid overdose and other opioid related harms will dramatically reduce quality of life for many people for years to come … 
  • Years of sustained and coordinated effort will be required to contain the current opioid epidemic and ameliorate its harmful effects on society."
  • Note: The chart below presents the number of overdose deaths from prescription and illicit opioids in the United States from 1999-2015

  • Separately, Federal Reserve Chair Janet Yellen (during testimony to U.S. Senate) said there are  “a variety of adverse trends related particularly to technological change that has eliminated many middle income jobs … 
  • I do think [the opioid epidemic] is related to declining labor force participation among prime-age workers … 
  • I don’t know if it’s causal or if it’s a symptom of long-running economic maladies that have affected these communities and particularly affected workers who have seen their job opportunities decline.” 


  • While law enforcement efforts will likely be highlighted as a way to address the opioid crisis, the challenge is broad and will also require assistance from insurershealth care organizations, government agencies, pharmaceutical firms and educators.
  • contributing factor to the problem is that the U.S. (unlike many other countries) allows aggressive marketing by pharmaceutical companies - which includes prescription opioids.
  • Regarding Yellen's comments - as technological change reduced the number of good paying jobs,  it may turn out to be another contributing factor to the opioid epidemic. 

Sunday, July 9, 2017

On the Video Game Market - Tencent, Addiction and more

  • Last week, in response to Chinese government comments that video games may be "harmful to the psychology of minors”, Tencent Holdings Ltd announced it would limit the use of its “Honor of Kings" smartphone app to one hour a day for players under 12 years old and two hours a day for users under 18 years old.  The firm also announced plans to introduce the game into the U.S. and European markets
  •  Note: Estimates suggest that Honor of Kings has over 163 million users each month.
  • Separately, in the study “Leisure Luxuries and the Labor Supply of Young Men”, which focuses on the U.S. market,  economists Mark Aquiar, Mark Bils, Kerwin Kofi Charles, and Erik Hurst suggest that computer gaming has led to a decline in workforce participation for men, ages 21 to 30, and said “As of 2015, men between the ages of 21 and 30 allocated 5.2 hours per week to recreational computer activities …
  • we can attribute the much greater increase in younger men’s computer time to a sizable improvement in technology for computer and video gaming, an improvement we would expect given declines in relative prices for computer and video games 
  • innovations to computer and gaming leisure may have dynamic effects on labor supply. It is possible that individuals develop a habit (or addiction) for such activities. …
  • Thus negative shocks to labor demand could have a persistent negative impact on labor supply via individuals first increasing their computer leisure, then developing a taste or skills for the activity.”
  • Regarding actions by the Chinese government - It is likely that younger players will figure out ways to continue playing Honor of Kings or other video games and business dynamics for Tencent and other video gaming firms will remain strong.
  • Regarding video game addiction – While research on this topic is still at an early stage, various studies suggest that 10% of video gamers may be addicted. 
  • Regarding the impact on workforce participation – A challenge for families, communities and policy makers will be dealing with gamers that are drawn to virtual worlds, as an alternative to low wage/stagnant growth job opportunities.

Sunday, July 2, 2017

On "Super-Monopolies" in the Technology Sector

  • Last Tuesday Facebook CEO Mark Zuckerberg said “As of this morning, the Facebook community is now officially 2 billion people! We're making progress connecting the world, and now let's bring the world closer together. It's an honor to be on this journey with you.”
  • Note:  Estimates suggest monthly users for YouTube: 1.5 billionWeChat:  889 millionTwitter: 328 millionSnapchat: 255 millionTwitch: 100 million.  Also, WhatsApp and Facebook Messenger each have about 1.2 billion monthly users. Instagram: 700 million.
  • Separately, as the European Union (EU) ordered Google to pay a €2.4 billion fine ($2.7 billion USD) for unfair, noncompetitive trade practices. EU Commissioner for Competition Margrethe Vestager said, “In Europe, companies must compete on the merits regardless if they are European or not.  What Google has done is illegal under E.U. antitrust rules. Google’s strategy for its comparison shopping service wasn’t just about attracting customers [or] about making its product better than those of its rivals…Google has abused its market dominance as a search engine.
  • Also, the PriceWaterhouseCoopers Entertainment and Media Global Outlook reported that two-thirds of all global advertising spending goes to Google, Facebook, Tencent, Baidu and Alibaba – of which 50% of total spending goes to Facebook and Google
  • Finally, Roger McNamee co-founder over venture capital firm Elevation Partners said, "Google, Facebook, Amazon are increasingly just super-monopolies, especially Google and Facebook. The share of the markets they operate in is literally on the same scale that Standard Oil had ... more than 100 years ago — with the big differences that their reach is now global, not just within a single country … I think it's a big policy question the world is going to have to deal with over the next few years,"

  • As Google, Facebook, Amazon and others provide low prices and/or attractive data services to consumers, their popularity and growth has negatively impacted some “traditional” businesses and likely prevented new entrants from coming into the market as well. 
  • While “super-monopolies” may exist, is unlikely that any actions will be initiated within the U.S. in the short-term given that 1) many of the technology firms are based there, 2) the U.S government currently is biased toward reducing regulatory oversight and 3) the trans-national nature of platform monopolies may have positive benefits. 
  • Note: Senator John Sherman, the author of the Sherman Act, which was signed into law in 1890 to address oil monopolies said, "Monopolies [are] inconsistent with our form of government. ... If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor, we should not submit to an autocrat of trade …"

Sunday, June 25, 2017

On the Health Care Debate in the U.S.

  • Last week, as the U.S. Senate released its version of an alternative to the “Affordable Care Act”, U.S. Chamber of Commerce President and CEO Thomas J. Donohue said, "The Senate health care bill will help to stabilize crumbling insurance markets caused by the Affordable Care Act, work to curb runaway premium increases, and jettison ill-conceived Washington mandates and taxes that have weighed heavily on our economy. This is an extremely important step in putting doctors and patients ahead of politicians when it comes to American health care.” 
  • AARP Executive Vice President Nancy LeaMond released a statement that said, “This new Senate bill was crafted in secrecy behind closed doors without a single hearing or open debate—and it shows. The Senate bill would hit millions of Americans with higher costs and result in less coverage for them. AARP is adamantly opposed to the Age Tax, which would allow insurance companies to charge older Americans five times more for coverage than everyone else while reducing tax credits that help make insurance more affordable … 
  • AARP is also deeply concerned that the Senate bill cuts Medicaid funding that would strip health coverage from millions of low-income and vulnerable Americans who depend on the coverage, including 17 million poor seniors and children and adults with disabilities … 
  • The Senate bill also cuts funding for Medicare which weakens the programs ability to pay benefits and leaves the door wide open to benefit cuts and Medicare vouchers. AARP has long opposed proposals that cut benefits or weaken Medicare."
  • Note: Numerous studies suggest that the U.S. health care system is one of the least effective among developed countries and that implementing a Universal Health Care system may be part of the solution.
  • Countries with some form of universal health care include Austria, Canada, Cuba, Denmark, Finland, France, Germany, Greece, Israel, Italy, Mexico, Norway, People's Republic of China, Portugal, Russia, Singapore, Sweden, Switzerland and the United Kingdom

  • Both the U.S. Chamber of Commerce (representing corporate interests)  and the AARP (representing Americans 50 and older) are powerful lobbying organizations.
  • While the bill's supporters suggest that they are aligned with the views of most U.S. citizenssurveys suggest that this is not the case.
  • Regardless of the outcome of current U.S. Congressional actions - health care in the U.S. will remain a contentious topic and its quality will likely continue to lag behind many other nations..  

Sunday, June 18, 2017

On the Effects of Overweight and Obesity (Globally)

  • Last week, the article “Health Effects of Overweight and Obesity in 195 Countries over 25 Years was published in The New England Journal of Medicine. 
  • Comments included :"The prevalence of obesity among children and adults has doubled in 73 countries since 1980 and has shown a continuous increase in most other countries …  (Globally more than 2 billion adults and children are overweight or obese), 
  • Our systematic evaluation ...  showed sufficient evidence supporting a causal relationship between high [Body Mass Index] and cancers of the esophaguscolon and rectum, livergallbladder and biliary tractpancreasbreastuterusovarykidney, and thyroid, along with leukemia.
  • In 2015, among the 20 most populous countries, the highest level of age-standardized adult obesity was observed in Egypt (35.3%), and the highest level of age-standardized childhood obesity was observed in the United States (12.7%)
  • China and India had the highest numbers of obese children, whereas the United States and China had the highest numbers of obese adults.
  • The Pew Research Center's article "What’s on your table? How America’s diet has changed" (December 13, 2016) said "Broadly speaking, we eat a lot more than we used to: The average American consumed 2,481 calories a day in 2010, about 23% more than in 1970 ... 
  • Americans consume 29% more grains, mostly in the form of breads, pastries and other baked goods, than they did in 1970 – the equivalent of 122.1 pounds a year ..
  • [American are[ eating a lot more cheese: 21.9 pounds a year, nearly three times the average annual consumption in 1970."
  • The causes of overweight and obesity are complicated (including poor diet, lack of physical activity, genetics, and food additives), but increased consumption, and  changes in what is consumed are significant contributing factors.
  • This is a health crisis that not only results in personal harm, but has a significant negative economic impact by increasing medical costsreducing workforce productivity, as well as causing premature deaths and disabilities.
  • Addressing the problem will require public education to drive lifestyle changes, as well as public policy initiatives to improve access to healthier foods and beverages.

Monday, June 12, 2017

Observations from High Profile Investors (Ray Dalio and Paul Singer)

  • Last week, Ray Dalio (Bridgewater Associates) said “UK and US Increase the Odds That Conflict Will Lead to Political Ineffectiveness … normally we don't need to pay much attention to politics to get the economics and markets right. However, there are times when politics becomes the most important driver … The 1930s were the last time this happened in the developed world and globally …  
  • Conflicts between the common man and the elites typically take place a) during times of economic stress due to wealth and opportunity disparities, b) when the common man believes that the country’s core values are being threatened by foreigners, and c) when government seems so dysfunctional that radical change is widely believed to be necessary … Those conditions typically lead to a strong-minded, confrontational fighter being brought to power to represent the underserved constituency, typically by pursuing more nationalistic, protectionist, and militaristic policies, which typically leads to more domestic and international conflicts. In some cases it led to democracies becoming dictatorships, and wars. I am not saying that we are on that path, but I am saying that it has to be watched out for because if it is in the works, it is a really big deal … 
  • Over the last 24 hours we’ve seen developments in the US (pertaining to the issues surrounding Jim Comey's testimony) and the UK (concerning no UK party having a ruling majority and the threat of a left populist leader emerging). While in both cases, so far, the political and legal institutions and systems have worked as intended … nonetheless these developments entail the risk that political conflicts will lead to reduced government effectiveness in these two countries at especially challenging times for each of these countries (e.g., for the UK exiting the union and needing to redefine its economic and geopolitical place in the world, and for the US needing to clarify its domestic and international directions).
  • Also, Paul Singer (Elliott Management) said during an interview at a Bloomberg investor conference “I am very concerned about where we are … What we have today is a global financial system that’s just about as leveraged -- and in many cases more leveraged -- than before 2008, and I don’t think the financial system is more sound … 
  • I don’t think that the fixes that have been put into place have actually created a sound financial system. I don’t believe that confidence is justified in policy makers and central bankers … 
  • If and when confidence is lost, it could be lost in a very abrupt fashion causing conceivably a ruckus in bond markets, stock markets and in financial institutions.” 
  • Finally, on Friday, the VIX Volatility Index for the S&P 500) ) briefly dropped to 9.37, its lowest level in more than 23 years. 

  • As Ray Dalio (his firm manages $150 billion) and Paul Singer (managing $34 billion) share their concerns about policy makers, it is unclear what process will lead to "better" political leadership in the short term.
  • Regarding low equity market volatility - while investor complacency may be a contributing factor, the increased use of algorithmic trading may also contribute to the current low level. Going forward, investors have to consider the potential that "hoped for" cuts in government spending and lower taxes may not take place.

Monday, June 5, 2017

Observations on Trump and the Paris Climate Accord

Last week, the following views were shared on the Paris Climate Accord:
  • U.S. President Donald Trump -  “My obligation is to the American People. The Paris Accord would undermine our economy, hamstring our workers, weaken our sovereignty, impose unacceptable legal risks, & put us at a permanent economic disadvantage to the other countries of the world.”
  • White House Chief of Staff Reince Priebus  – “Promise kept. @POTUS exits flawed #ParisAccord to seek better deal for U.S. workers & economy. This WH will always put #AmericaFirst.”
  • U.S Vice President Mike Pence‏ - “Our President is choosing to put American jobs, American consumers, American energy, and American industry first.”
  • U.S. Senator Mitch McConnell (Kentucky) -  “I applaud President Trump and his administration for dealing yet another significant blow to the Obama administration’s assault on domestic energy production and jobs”.
  • From a joint statement by AdobeAppleBlue Cross Blue Shield of MassachusettsDanfossDigital HealthFacebookGap Inc.. GoogleThe HartfordHewlett-Packard EnterpriseIngersoll RandIntel Corp.Johnson ControlsLevi Strauss & CompanyMars IncorporatedMicrosoftMorgan StanleyNational GridPG&E Corp.Royal DSM,  SalesforceSchneider ElectricTiffany and CompanyUnileverVF Corp. - "Continued U.S. participation in the agreement benefits U.S. businesses and the U.S. economy in many ways ....As other countries invest in advanced technologies and move forward with the Paris Agreement, we believe the United States can best exercise global leadership and advance U.S. interest by remaining a full partner in this vital global effort." 
  • Over 175 U.S city mayors representing + 50 million Americans "will adopt, honor, and uphold the commitments to the goals enshrined in the Paris Agreement. We will intensify efforts to meet each of our cities’ current climate goals, push for new action to meet the 1.5 degrees Celsius target, and work together to create a 21st century clean energy economy."
  • California Governor Jerry Brown - "Donald Trump has absolutely chosen the wrong course. He's wrong on the facts. America's economy is boosted by following the Paris Agreement. He's wrong on the science. Totally wrong. California will resist this misguided and insane course of action. Trump is AWOL but California is on the field, ready for battle."
  • Michael Bloomberg - "Americans will honor and fulfill the Paris Agreement by leading from the bottom up - and there isn't anything Washington can do to stop us."
  • Tesla and SpaceX CEO Elon Musk – “Am departing presidential councils. Climate change is real. Leaving Paris is not good for America or the world.”
  • General Electric CEO Jeff Immelt – “Disappointed with today’s decision on the Paris Agreement. Climate change is real. Industry must now lead and not depend on government.”
  • Goldman Sachs CEO Lloyd Blankfein  - “Today's decision is a setback for the environment and for the U.S.'s leadership position in the world.”
  • Disney CEO Robert Iger - "As a matter of principle, I've resigned from the President's Council over the #ParisAgreement withdrawal.”
  • Canadian Prime Minister Justin Trudeau - “We are deeply disappointed that the United States federal government has decided to withdraw from the Paris Agreement. Canada is unwavering in our commitment to fight climate change and support clean economic growth. Canadians know we need to take decisive and collective action to tackle the many harsh realities of our changing climate."
  • German Chancellor Angela Merkel - “I am so moved and enthused that so many states and enterprises in the United States of America want to travel this path with us,” she said. “We will travel it together.”
  • Former U.S. President Barack Obama - “... in the absence of American leadership; even as this Administration joins a small handful of nations that reject the future; I’m confident that our states, cities, and businesses will step up and do even more to lead the way, and help protect for future generations the one planet we’ve got.”
  • European Union Council President Donald Tusk - "We are convinced that yesterday's decision by the United States to leave the Paris agreement is a big mistake.”
  • Paris Mayor Anne Hidalgo – “[Trump is] not up to the level of what one would expect from a president of a great nation that we love .. [he is] a representative of a world gone by, a world that is looking back in the rear view mirror and does not see what is happening today."
  • Bishop Oscar Cantú of Las Cruces - “The United States Conference of Catholic Bishops (USCCB), along with Pope Francis and the entire Catholic Church, have consistently upheld the Paris agreement as an important international mechanism to promote environmental stewardship and encourage climate change mitigation. The President’s decision not to honor the U.S. commitment to the Paris agreement is deeply troubling.”
  • American Civil Liberties Union – “Pulling out of the Paris Agreement would be a massive step back for racial justice, and an assault on communities of color across the U.S. Drought, hurricanes and flooding will impact every American - but climate change doesn't affect us all equally. Black and brown people are more likely to live near coal plants, and have higher asthma rates than white Americans do. That disparity is only going to worsen in coming years, and it's why we must #ActOnClimate if we're serious about racial justice.”

  • The Paris Climate Accord was signed by 196 countries in 2015 and is an evolving framework of provisions to address climate change.
  • As Trump plays to his base supporters, U.S. states and cities will likely increase their influence on U.S. environmental policy and perhaps other policy matters as well. 
  • Note: Syria and Nicaragua are the only other countries not signed on to the Accord.

Monday, May 29, 2017

On the Impact of Automation (Mark Zuckerberg, Best Buy, retailers and more)

  • Last week Mark Zuckerberg, during his Harvard University commencement speech, said, “Our generation will have to deal with tens of millions of jobs replaced by automation like self-driving cars and trucks. But we have the potential to do so much more together. Every generation has its defining works. More than 300,000 people worked to put a man on the moon – including that janitor. Millions of volunteers immunized children around the world against polio. Millions of more people built the Hoover dam and other great projects. These projects didn't just provide purpose for the people doing those jobs, they gave our whole country a sense of pride that we could do great things.” 
  • Also, the report “Retail Automation: Stranded Workers? Opportunities and risks for labor and automation” by the Investor Responsibility Research Center Institute said “The impact of significant reductions in retail workers may mirror the impact of manufacturing job losses. Retail sales at brick-and-mortar stores … are increasingly constrained as consumers shift to online shopping. At the same time, many parts of the country are experiencing upward structural wage pressure as concerns about income inequality are gaining political traction. Major retailers, including Macy’s, J.C. Penney, Kohl’s and WalMart, have collectively closed hundreds of stores over the last few years in attempts to stem losses from unprofitable stores. These headwinds are pushing retailers to rethink the traditional retail business model … this report argues that companies which use technology to support their workers are likely to benefit from long-term productivity gains. However, technology also has the potential to automate part of the sales process and render a range of jobs redundant. Taken together, store closures and automation technology have the potential to accelerate job losses in retail, an industry that employs approximately 10% of the total US labor force.”
  • During its quarterly investor conference call, Best Buy Chief Financial Officer Corie Barry said, "We believe there’s real opportunity to take waste out of the system through automation and there are places like our supply chain, there are places like some of our call centers, where we believe we have real opportunities to become more automated.”
  • While workplace automation is part of the pursuit of "faster/better/cheaper" solutions, current advances in robotics, artificial intelligence, etc may increae the pace of worker displacement.
  • Issues for technology, business and community leaders to address include 1) how will worker adaptation will be managed and 2) how broadly will economic benefits be distributed.    

Sunday, May 21, 2017

On AI, Machine Learning, VR, Robotics and the Cloud (JP Morgan, Google, OpenAI)

  • Last week, JP Morgan released “Big Data and AI Strategies: Machine Learning and Alternative Data Approach to Investing”, a report which said “over the past year, the exponential increase of the amount and types of data available to investors prompted some to completely change their business strategy and adopt a ‘Big Data’ investment framework. Other investors may be unsure on how to assess the relevance of Big Data and Machine Learning, how much to invest in it, and many are still paralyzed in the face of what is also called the ‘Fourth Industrial Revolution … As more investors adopt alternative datasets, the market will start reacting faster and will increasingly anticipate traditional or ‘old’ data sources (e.g. quarterly corporate earnings, low frequency macroeconomic data, etc.). This gives an edge to quant managers and those willing to adopt and learn about new datasets and methods. … Regardless of the timeline and shape of the eventual investment landscape, we believe that analysts, portfolio managers, traders and CIOs will eventually have to become familiar with Big Data and Machine Learning approaches to investing. This applies to both fundamental and quantitative investors, and is true across asset classes.”
  • Also, the non-profit AI research group, OpenAI, said in the note Robots that Learn We’ve created a robotics system, trained entirely in simulation and deployed on a physical robot, which can learn a new task after seeing it done once. Now, we’ve developed and deployed a new algorithm, one-shot imitation learning, allowing a human to communicate how to do a new task by performing it in [virtual reality]. Given a single demonstration, the robot is able to solve the same task from an arbitrary starting configuration.
  • Note: OpenAI’s backers include include Sam AltmanGreg BrockmanElon MuskReid HoffmanJessica LivingstonPeter ThielAmazon Web ServicesInfosysYC Research and Microsoft.
  • Finally, during its developer conference, Google announced that “Researchers require enormous computational resources to train the machine learning (ML) models that have delivered recent breakthroughs in medical imagingneural machine translationgame playing, and many other domains. We believe that significantly larger amounts of computation will make it possible for researchers to invent new types of ML models that will be even more accurate and useful.  To accelerate the pace of open machine-learning research, we are introducing the TensorFlow Research Cloud ... to support a broad range of computationally-intensive research projects that might not be possible otherwise."

  • Regarding JP Morgan’s comments  – As technology continues to reshape the financial services industry, it is worth revisiting a famous quote by Walter Wriston (CEO of Citibank / Citicorp from 1967 to 1984): “Information about money has become almost as important as money itself”.
  • Regarding Robots that Learn – this example of the integration of AI, virtual reality and robotics illustrates the future direction of product prototyping and design.
  • Regarding Google’s TensorFlow cloud – the battle for mind-share among software developers and researchers will require significant investments by firms including AmazonMicrosoft, FacebookApple and IBM

Sunday, May 14, 2017

"Nearly All Information, Communications Networks and Systems will be at Risk for Years"

  • Last Friday, U.S. Director of National Intelligence Daniel Coat’s comments to the Senate Committee on Intelligence included “Our adversaries are becoming more adept at using cyberspace to threaten our interests and advance their own, and despite improving cyber defenses, nearly all information, communication networks, and systems will be at risk for years … Cyber threats are already challenging public trust and confidence in global institutions, governance, and norms, while imposing costs on the US and global economies. Cyber threats also pose an increasing risk to public health, safety, and prosperity as cyber technologies are integrated with critical infrastructure in key sectors. These threats are amplified by our ongoing delegation of decisionmaking, sensing, and authentication roles to potentially vulnerable automated systems. This delegation increases the likely physical, economic, and psychological consequences of cyber attack and exploitation events when they do occur. Many countries view cyber capabilities as a viable tool for projecting their influence and will continue developing cyber capabilities. Some adversaries also remain undeterred from conducting reconnaissance, espionage, influence, and even attacks in cyberspace.”
  • In addition to potential threats from RussiaChinaIranNorth Korea and terrorist organizations, Coats noted that "Criminals are also developing and using sophisticated cyber tools for a variety of purposes including theft, extortion, and facilitation of other criminal activities. “Ransomware,” malware that employs deception and encryption to block users from accessing their own data, has become a particularly popular tool of extortion. In 2016, criminals employing ransomware turned their focus to the medical sector, disrupting patient care and undermining public confidence in some medical institutions.  
  • On Friday, the U.S Department of Homeland Security said it was “aware of reports of ransomware known as WannaCry affecting multiple global entities. Ransomware is a type of malicious software that infects a computer and restricts users’ access to it until a ransom is paid to unlock it.  Microsoft released a patch in March that addresses this specific vulnerability, and installing this patch will help secure your systems from the threat ...  we encourage all Americans to update your operating systems and implement vigorous cybersecurity practices at home, work, and school.” 
  • Also, Senator Ben Sasse, a member of the Senate Armed Services Committee said "This is big: around the world, doctors and nurses are scrambling to treat patients without their digital records or prescription dosages, ambulances are being rerouted, and millions of people's data is potentially exposed. Cybersecurity isn't a hypothetical problem – today shows it can be life or death. We'll likely look back at this as a watershed moment."
  • Note: Reports suggest that over 125,000 computers in +100 countries were impacted by the WannaCry ransomware last week, which included over twenty British hospitalsFedExRenault, Nissan, Telefonic,and Deutsche Bahn.  
  • As technology firms introduce new operating systems, applications and distributed solutions,  the slow pace of customer adoption along with reduced support for "legacy" systems creates security risks. For example, Microsoft stopped providing security updates for it Windows XP operating systems on April 8, 2014. However, in the case of WannaCry, Microsoft took an "highly unusual" step and provided patches for Windows XP, Windows 8, and Windows Server 2003
  • Minimizing the impact of cyber-attacks will continue to require many approaches including 1) installing security patches and software updates, 2) avoiding links and attached files in unfamiliar emails, 3) backing up data, 4) using encrypted services and 5) incorporating data security into the design of new technology solutions.  

Sunday, April 16, 2017

On the Mother of All Budgets (U.S. Defense)

  • Last week, after the U.S. dropped the Massive Ordnance Air Blast (MOAB) aka "Mother of All Bombs" in Afghanistan, U.S. Army Gen. John Nicholson Jr. said, “This was the right weapon against the right target … designed to destroy caves and tunnels, which ISIS-K have been using… it was the right time to use it tactically, against the right target on the battlefield … the weapon achieved its intended purpose."  NOTE: the MOAB 1) is the most powerful non-nuclear U.S. bomb, 2) weighs about 22,000 pounds and 3) has an explosive capacity of about 11 tons of TNT with a blast radius of about a mile.  Estimates suggest that each MOAB costs $16 million, from a program that spent $314 million to produce about 20 bombs.
  • In a quarterly report to the U.S. Congress (Jan.  2017), John Sopko, Special Inspector General for Afghan Reconstruction, assessed progress in Afghanistan (a region where the U.S. has spent over $117 billion since 2002) and said “Unfortunately in the nearly five years I’ve been traveling to Afghanistan, I first witnessed the United States put in way too much, way too fast. More recently, I’ve watched the U.S. remove way too much, way too fast. Policy makers both in Congress and the new Trump Administration should take note of this.”
  • In the Sept. 2016 report “US Budgetary Costs of Wars through 2016: $4.79 Trillion and Counting – Summary of Costs of the US Wars in Iraq, Syria, Afghanistan and Pakistan and Homeland Security” by  Boston University Political Science Profession Neta C. Crawford, said “As of August 2016, the US has already appropriated, spent, or taken on obligations to spend more than $3.6 trillion in current dollars on the wars in Iraq, Afghanistan, Pakistan and Syria and on Homeland Security (2001 through fiscal year 2016). To this total should be added the approximately $65 billion in dedicated war spending the Department of Defense and State Department have requested for the next fiscal year, 2017, along with an additional nearly $32 billion requested for the Department of Homeland Security in 2017, and estimated spending on veterans in future years. When those are included, the total US budgetary cost of the wars reaches $4.79 trillion
  • Regarding the MOAB – While some headlines associated it with nuclear bombs, the MOAB is equivalent to 11 tons of TNT, the “Little Boy,” bomb dropped on Hiroshima in August 1945 was equivalent to about 16,000 tons of TNT.
  • Regarding U.S. military spending – Given that U.S. military spending is greater than ChinaSaudi ArabiaRussiaUKIndiaFrance and Japan combined; the potential for inefficiency and corruption are likely to be large as well.

Sunday, April 9, 2017

On Twitter, the U.S. Government. Privacy and Free Speech

  • Last week, Twitter filed a lawsuit related to the U.S.  Department of Homeland Security’s request to reveal the identity for the anonymous account @ALT_USCIS, which posts comments about U.S. Citizenship and Immigration Services and Trump Administration immigration policies. The filing said “Adam Hoffman, an agent within U.S. Customs and Border Protection … [ordered] Twitter to produce certain records pertaining to the @ALT_USCIS account [and] Failure to comply with this summons will render you liable to proceedings in a U.S. District Court to enforce compliance with this summons as well as other sanctions.”  Twitter stated that “The CBP Summons is unlawful and unenforceable because it violates the First Amendment rights of both Twitter and its users by seeking to unmask the identity of one or more anonymous Twitter users voicing criticism of the government on matters of public concern.”
  • On Friday, the U.S. Government withdrew its action against Twitter and Esha Bhandari, an American Civil Liberties Union lawyer representing the anonymous user said, "Speaking anonymously about issues of the day is a longstanding American tradition, dating back to when the framers of the Constitution wrote under pseudonyms … the anonymity that the First Amendment guarantees is often most essential when people criticize the government, and this free speech right is as important today as ever."
  • The US Constitution’s First Amendment says “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

  • The action against Twitter is another example of the prominent position that social media platforms have in the debate about free expression.  
  • While “free speech” and “personal privacy” have encountered legal challenges in the past, the actions by the current administration will likely keep the U.S. judicial system very busy.
  • Finally, it seems ironic that the use of Twitter’s messaging platform may play a role in affirming, or changing the path forward for U.S. constitutional law.

Sunday, March 26, 2017

On Artificial Intelligence and Job Losses

  • Last week, U.S. Treasury Secretary Steven Mnuchin said “In terms of artificial intelligence taking over American jobs, I think we’re like so far away from that, not even on my radar screen … I think it’s 50 or 100 more years [away] … It’s taken jobs that are low-paying … We need to make sure we are investing in education and training for the American worker.
  • Separately, the White House report “Artificial Intelligence, Automation, and the Economy” from Dec. 20, 2016 said “Advances in Artificial Intelligence (AI) technology and related fields have opened up new markets and new opportunities for progress in critical areas such as health, education, energy, economic inclusion, social welfare, and the environment. In recent years, machines have surpassed humans in the performance of certain tasks related to intelligence, such as aspects of image recognition. Experts forecast that rapid progress in the field of specialized artificial intelligence will continue. Although it is unlikely that machines will exhibit broadly-applicable intelligence comparable to or exceeding that of humans in the next 20 years, it is to be expected that machines will continue to reach and exceed human performance on more and more tasks … AI-driven automation will continue to create wealth and expand the American economy in the coming years, but, while many will benefit, that growth will not be costless and will be accompanied by changes in the skills that workers need to succeed in the economy, and structural changes in the economy. Aggressive policy action will be needed to help Americans who are disadvantaged by these changes and to ensure that the enormous benefits of AI and automation are developed by and available to all.”
  • Also, the Pew Recent Center report “Public Predictions for the Future of Workforce Automation” March 10, 2016 said “Two-thirds of Americans expect that robots and computers will do much of the work currently done by humans within 50 years … but most workers expect their own jobs or professions will still exist in their current form in five decades”

  • Regarding Mnuchin view -  Many studies suggest that blue and white collar tasks are  being replaced by AI and automation more rapidly than Mnuchin’s expectations.
  • Regarding investing in education and training – With the rapid pace of technological inovation, policymakers face the challenge of determining what type of education and training should be funded to address the structural changes taking place in the job market.  

Sunday, March 19, 2017

On Autonomous Vehicles in California and More

  • On March 10, the California Department of Motor Vehicles (DMV) proposed new regulations for testing and deploying autonomous vehicles that would allow the vehicles to drive on the road without human presence and DMV spokesperson Artemio Armenta said “We have received numerous comments from companies, consumer advocates, local government and stakeholders to promote innovation and address public safety … this is a rule-making process, so the next step is making sure we get this completely right.”
  • Dan Gage, spokesman for the Alliance of Automobile Manufacturers said, “With federal statistics confirming that 94 % of all crashes involve driver error, getting more of these new technologies on our roads will help keep drivers safer, while also helping to avoid traffic congestion, reduce fuel use and save time and money,”
  • John M. Simpson, director of the Consumer Watchdog's Privacy Project said "The DMV's current self-driving car test regulations set a standard for the nation, requiring a test driver behind a steering wheel who could take over, and vital public reports about testing activities … The new rules are too industry friendly and don't adequately protect consumers … DMV needs to rein in Uber CEO Travis Kalanick and his renegade operations … Explicit truck testing rules are required immediately." 
  • Brian Soublet, DMV deputy director and chief counsel said “Both highway patrol and local areas need to know how to interact with the vehicles, and we’ve put out what we think are minimum standards … They need to understand how to know if the autonomous technology is engaged, how to pull it off the road, and some of the important things [such as] where to find in the vehicle who owns it and who is insuring it.” 
  • Separately, a recent AAA survey of over 1,000 Americans revealed that: 1) 78% are afraid to ride in a self-driving vehicle, 2) 54% do not want a self-driving vehicle near them while they are on road, but 3) 60% are interested in vehicles with autonomous features, such as automatic braking and self-parking


  • Recent tests of autonomous vehicles suggest that progress is being made, but safety issues continue to be encountered.
  • In addition, as Brian Soublet has highlighted, there are many dynamics  to address beyond the technology to enable the transition.  
  • Regarding consumer views - autonomous vehicles will improve over time and consumers will be more receptive as they increasingly experience the benefits of this class of technology.