Category Archives: Finance

AI Beats the Stock Market and Rules the World

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“Stockmarket Charts” by Negative Space/ CC0 1.0

People have been using computers to try and beat the stockmarket/sharemarket ever since computers existed. And for the most part they have failed. Certainly anyone who had an advantage has not been able to keep it secret, or stop others working it out. So we get told that AI cannot win at stock picking.

But that is when computers only look at the technicals – price movements and ratios and the like – pure numbers. The same can be said for the forex markets. People who do (supposedly) profit from these via skill are not numbers people – they research and use instinct and are cautioius.

Generative AI has quickly moved into the areas of words, images, video and even sound. These are not primarily mathematical, but the AI can be trained to spot patterns and make predictions. If it knows my writing, it can predict how I will finish a sentence. Of course it isn’t prescient, but an educated guess is all a stock-picker can make anyway.

Stock movements are triggered by all sorts of things. The layman in me knows of at lease these:

  • Company announcements
  • Economic indicators
  • News affecting sectors
  • Currency movements
  • Rumors
  • Boredom (stock is static and something else is shinier)
  • Re-balancing of funds – especially the top 50 type

There will be more, of course. The thing is, all of this, combined with the technicals, is knowable by AI, and patterns can be found. Analysts might know that a CEO being accused of anything sexually improper will definitely make a share price drop. But by how much, how do you weight such news? And what decides if the stock price recovers or not, later?

I predict that an AI system will one day be able to make stock picks based on news combined with fundamentals, enough to beat the market.

My only doubts are:

  • How much better can it be than humans?
  • How long will it take?

Could be that it needs 1,000 years of data. Or 10. No way of knowing until you try.

When and if it happens, the degree of improvement in results over human analysts might not need to be much at all. Once you have certainty in the level of good predictions it can make, then the bets can be ramped up using financial leveraging, whether that is borrowing money cheaper that the returns you will get, or trading in derivatives.

Then, if nobody else has access to such a tool, the owners (or even the AI masquerading as the owner) can very rapidly become the richest entity in the world, and then some – with all the power that brings with it.

Crypto Needs to be Circular

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As long as cryptocurrencies are related – in any way – to traditional currencies, they don’t have a chance.

They need to be able to stand on their own two feet, to work in isolation.

It is possible, we just need to find a set of services that form a circular economy. Here is a non-exhaustive starting point.

Platforms/Currencies that it can revolve around

Crypto
Game
Metaverse
Advertising (Google/FB)
Venture Capital
Crowdfunding
Equity Crowdfunding
Peer2Peer Lending
Services Platform (Fiverr)

Digital uses for the currency (must be primarily labour-intensive)

Web design
Game design
Graphic design
Writing
Journalism
Guest Posting
Translation
Programming
Tech Support
Consulting
Life Coaching
Virtual Assistant
Customer Care
Tutoring
Music / Voice Over / Jingles
Video Editing
Transcription
Influencer Marketing
Community Management

Offline (must be primarily labour-intensive)

Modelling
Personal Trainer
Gardening / Landscaping
Driving / Delivery (not own vehicle)
Hairdressing (for someone else’s salon, or from home)
Massage
Child care
Cleaner
Housesitter
Photography
Mystery Shopper
Furniture Assembly

The above is literally a starting point. Somebody might need to intuit the system that works, for it isn’t easy to deduce. What is likely needed is degrees of separation that connect the above.

For example:

Game Developer pays Graphic Designer 1LC (LifeCoin)
Graphic Designer pays Accountant 1LC
Accountant pays Bakery 1LC <<< is not a primarily labour-intensive business, has real-world, fiat currency costs!
Bakery pays SEO company 1LC
SEO Company pays Game Developer (for in-app ads) 1LC

We effectively have a bartering system that uses a cryptocurrency. It works great on a simplistic level.

Major issue – the balancing act

What if the Graphic Designer gets more LC than they can spend? With a fiat currency, our entire world revolves around it, and finds a use for it. Not so with a fledgling currency that needs to be different and not convertible.
(Why not convertible? Well, it renders it meaningless – why not just use the dollar anyway??)

So we need an extra mechanism, one that takes care of deficits and surpluses. A bank? With interest rates?
That still doesn’t work – because you can’t cash out beyond what is available to buy with a LC. And, initially, that is limited.

And we cannot convert it to a fiat currency. So what else can it be used for? What has value and is open-ended?

Here are some random ideas, not to be taken seriously, just testing the water:

Status – hey look at me, I have many!
Offspring – your great-great-grandchildren might need a personal trainer
Capital Investment – there is value in ownership beyond dividends
Charity – labor-intensive charity work could be paid

My Best Guess (so far)

Some Facebook-esque corporation will create an Augmented Reality overlay of our world (info, social and advertising), and link it to a virtual world of socialising and gaming. It will have an internal currency.

There are 2 ways a crypto-currency can launch, aside from speculation and ponzi schemes:

  1. A major corporation with a digital product simply brings it into being:

Google – receives money for digital advertising, and digital entertainment products, and gives money in the AdSense network.

2. A circular economy, based on labour-intensive work:

It still needs a catalyst. A play-to-earn video game is my best bet. A game so good that is success drives the model.

Ponzi Scheme Squared

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We all know what a Ponzi scheme is..

Not even really a scheme: promise people riches, and more riches if they don’t withdraw. Those who do withdraw, pay them from the new punters. It is so simple and easy that it prints money. No need for anything more complex?

What if the new players for your scheme were all fictitious people from another scheme?

Here’s how it could work:

Invent something so stupid it kinda makes sense if people buy it – like pet rocks
People don’t buy it but you falsify sales records
(everybody in the business is in on this…)
Based on amazing online sales you open some flagstaff physical stores, which also perform “brilliantly”.
(also, you own all the land immediately around the new stores)

Because the business, and the stores, are all so amazing, people build homes there. At prices suited to the amazingness.

So fake people pay fake rent to shop at fake stores paying fake rent because they are next to the amazing business that everyone apparently loves but nobody actually does. They lied.

Each on their own don’t appear to be overly valued, because its like 10% different to normal. But when you multiply a 10% gain by 10 and then by 10, you are making 10X as much.

So then you sell. For 10x more (maybe more like 5x) than you paid. Sell everything, quietly, unannounced, the same day.

You walk away. All the companies that owned the layers of the scam, go bankrupt and the principals were not real people.

OK I guess I got carried away, but the principle is sound. Multi-level ponzi. The shape will depend on the industry.

 

 

 

CLO Alert: Sell Shares Now!

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Being a futurist is difficult and potentially embarrassing.

Making short term economical predictions is foolhardy, unless you produce carefully worded statements that always end up correct in retrospect.

I bought big on the sharemarket a the lowest point of the Global Financial Crisis, and my buying was leveraged. Then a short while later, there was a new, deep low point. After a decade of waiting for such an opportune moment, I was too keen, and lacked the caution required.

Tomorrow I am selling all my shares except for gold. But only if they go up in value, even a little. I need that psychological feel good factor of winning, even if I have only improved upon what Friday’s prices would have given me.

But the reasoning is solid:

  • Inexperienced investors are gambling on travel-related stocks, thinking everything will come right quickly
  • The sharemarket is still very volatile, months into the pandemic, indicating nobody is certain of anything
  • Trump’s Tulsa campaign rally is symptomatic of a lack of care from leaders that will easily trigger a second wave, or a first wave that keeps going. At some point the bad news of things worsening will cause a big drop on Wall Street
  • But mostly, CLOs have me worried…

After the housing crisis, subprime CDOs naturally fell out of favor. Demand shifted to a similar—and similarly risky—instrument, one that even has a similar name: the CLO, or collateralized loan obligation. A CLO walks and talks like a CDO, but in place of loans made to home buyers are loans made to businesses—specifically, troubled businesses. CLOs bundle together so-called leveraged loans, the subprime mortgages of the corporate world. These are loans made to companies that have maxed out their borrowing and can no longer sell bonds directly to investors or qualify for a traditional bank loan. There are more than $1 trillion worth of leveraged loans currently outstanding. The majority are held in CLOs.
https://www.theatlantic.com/magazine/archive/2020/07/coronavirus-banks-collapse/612247/

Governments are propping up businesses as best they can during the pandemic, but on the other side there will be a lot of failures, where debts to banks cannot be paid. CLOs are the same as the home loads of the GFC – sold so many times that nobody knows what they really are, and they are really risky loans that perhaps should not have been made. And certainly not loans anyone wants to be carrying in this climate.

The big risk, as speculated in the above article, is that the government won’t bail out banks this time. Even if it does, the uncertainty preceding such a decision could be disastrous to the share market.

I’m buying gold.

 

 

COVID-19 and Property Values

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The pandemic will cause commercial property values to drop significantly. This will cause property owners to default on mortgage repayments, and then those properties will find new owners at a lower price, who will then offer lower rent.

Offices

The trend has to be away from working in offices.

  • Many businesses now know that they can have work-from-home staff, and any fears they had regarding work actually getting done could have been reduced
  • Co-working spaces were never hugely profitable, and are not likely to be resurrected. Those workers are already working mostly remotely and will shift to home
  •  Reduced staff numbers in existing offices means reduced space utility, which means downward pressure on rent

Restaurants

Restaurants will not have more seated customers than before the pandemic, so the same or less are the only ways it can go. So expect rent to drop, or food prices to increase

  • People have become more used to feeding themselves at home
  • Even if the law allows it, some people will not like being seated so close to others
  • Table service might disappear – the most likely spreader is a waiter who talks to dozens of tables every night
  • Home delivery will be higher than pre-pandemic, as even more people have become used to it

Retail

Retail was already disappearing in the physical world.

  • More people will have discovered and become used to online shopping
  • Some people will have a long-term distaste for being in busy malls purely to shop
  • Malls will continue to pivot towards food and experiences
  • Supermarkets will stay busier

Residential

After being stuck in apartments for months, people will (even if just subconsciously) desire more space at home. Prices for standalone houses will rise much more than apartments.

  • People now working from home will want more space
  • We will have developed more pride of our homes
  • Entertaining friends at home will increase, instead of meeting in public spaces
  • Homes with gardens will be desired

 

How Banks Could Distribute Cryptocurrencies

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For any digital currency to take off it needs to come from a business people trust, and it needs to be widely distributed, and perhaps it needs to be forced onto people.

While governments will ultimately be the only winners in this space – because they can legislate against anyone else and they can’t lose control of currencies, banks could make a play. Banks obviously have the technology and infrastructure, and people already use their products to make payments.

Distribution can be easy and fair – by attaching it to either interest paid or received by customers. One BankCoin for every $100 in interest.

All the bank needs to do is make the BankCoin redeemable in enough places for people to benefit from it. Perhaps public transport, convenience stores and major online shopping destinations.

It could be seen as something similar to a loyalty card, that in effect gives a 1% discount – for example FlyBuys in Australia. The average mortgage repayment in Australia is around $2000, so that would be $20 per month in BankCoin. You’d want it to be around $100 per month to be widely adopted, so that is a 5% discount. Perhaps too much?

But what benefit do the banks receive for giving away 5% of their profits?

Micropayments. They are a product that will definitely happen one day, will work best if provided by a bank, and are only really achievable with a digital currency.

Once there is enough BankCoin out there, banks can stop issuing it, and just reap the benefits.

Oh, and all the banks in one country could work together on this…

Universal Income x Cryptocurrency x Food Stamps

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We don’t have food stamps in Australia but they seem to work well in the USA – I don’t hear anyone complaining about them. Australia is trialling something similar for people who are receiving benefits and have repeatedly failed a drug test.

Universal income has received a lot of discussion recently, and is being championed by Silicon Valley.

And of course BitCoin is still doing well.

Why don’t we combine all 3? Everyone receives a universal income, via purpose-made crypto-currency, that can only be spent on certain items like food and rent.

Using crypto-currency to distribute universal income is not a new idea, and it has been discussed in a comprehensive article at Vice.

My two cents is that:

  • it is easy to implement, and harder to cheat, for making it available for only certain categories like fresh food, public transport, and rent
  • because it will be a government that creates the currency, it is more likely to be adopted as a general digital currency for everyone to use
  • welfare payments and the salaries of government employees could be achieved with it. See my idea on this an Ordu

 

SmartFill for Quicker Signups and Purchases

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This for one of the behemoths that already have us logged in during most of our web journeys. Google, Facebook. Microsoft/MSN/Live/Hotmail…

Paypal-logo-20141

When making a purchase or signing up for a subscription, you get a page pre-filled with all of your pertinent info:

  • name
  • email
  • address
  • credit card
  • age
  • mother’s maiden name

and so on…

The sign up page is controlled by Google, Facebook, whoever.

Each field has a statement alongside it specifying how the data would be used. This forms part of a legal agreement of the same. Not unlike when you get an Apple app and you are told which aspects of your iPhone/iPad would be open to them. But take it step further and state precisely what the data could/would be used for.

Just using tick-boxes and extended info from the merchant, you can quickly decide which data to let them use, and which to not.

The tick-boxes can be pre-filled, but if they are, the merchant must allow ratings from every user regarding how they feel about those preselections. Ask for too much unnecessarily and feel the backlash.

PayPal could do this. The key problem – credit card details – would be already out of the mix. That’s a bold sales pitch – we already protect your credit card details, let us protect everything else.

 

The Next PayPal – Micro-Payments & Rich Descriptions

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The first of two factors that I feel will be part of the payment system that topples PayPal’s crown is a no-brainer: make micro-payments a popular and real thing.

The other is something far less innovative.

When I look at purchases on my credit card statement, I see the name of a merchant and a dollar amount. Often the name is not one I recognise, and it can be difficult working out exactly where I made the transaction. And even if I know who the merchant is, there is nothing to tell me what I purchased.

Likewise, PayPal uses the same system. Yet in this data rich electronic age, there’s no reason why I can’t see the full details with one click:

  • the merchant’s trading name
  • their full contact details
  • list of the items I purchased
  • option to cancel (if it is a subscription)

Once we have all that, the data could be used for analysis – a home finance system.