Tuesday, January 22, 2019

In a Move that Stunned Wall Street, Nancy Nakamoto, Izabella Kaminska and, Davos DeVille Were Spotted Together

Thus putting to rest the rumor that Ms Kaminska was somehow the alter-ego (or alter-Id, it gets confusing) of Ms. Deville and of Nakamoto, Bond villain and widow of the creator of bitcoin.

From FT Alphaville's twitter sidebar:
Of the three , and despite Ms. Kaminska's entreaty to focus on one of her journo's rather than Davos, Ms. Deville is deliciously tart (not a tart) and like Lerner & Lowe's Brigadoon only appears for one special period of time (in DeVille's case annually, Brigadoon centennially).

Here is Davos DeVille 2019 reporting for FT Alphaville: 

"Port of Rotterdam: Self-Learning Computers Predicting Vessel Arrival Times"

End of an era.
For most of the history of shipping the merchant who knew the arrival time of a cargo, especially a consumable, had an advantage in that they could take their inventory position to flat or maybe even sell forward to avoid getting stuck when supply hit the market.

This ancient tale was in fact was the basis of my understanding of speculation.
From a 2011 post "This is What a Bear Market Looks Like Folks (now with Voodoo Beach Bunnies)":
One etymology of the word speculation:
c.1374, "contemplation, consideration," from O.Fr. speculation, from L.L. speculationem (nom. speculatio) "contemplation, observation," from L. speculatus, pp. of speculari "observe," from specere "to look at, view" (see scope (1)). Disparaging sense of "mere conjecture" is recorded from 1575. Meaning "buying and selling in search of profit from rise and fall of market value" is recorded from 1774; short form spec is attested from 1794. Speculator in the financial sense is first recorded 1778. Speculate is a 1599 back-formation. 
That is not the etymology grandmother taught me. Hers had to do with Italian merchants keeping watchtowers manned to spot sails over the horizon, enabling those who could see furthest to sell off inventory before goods-ladened ships made harbor and crashed the market. More like this etymology at Wictionary:
From Latin speculātus, past participle of speculor (“‘look out’”), from specula (“‘watchtower’”), from specio (“‘look at’”) Either way, the current market does not lend itself to either contemplation or seeing over the horizon....
One of the complaints about the greatest dividend paying corporation of all time, the Dutch East Indies Company was that it sometimes paid dividends-in-kind meaning all the shareholders received their allotment of spices at the same time and many rushed to convert to guilders as quickly as possible.

And then there is this from AFNS via 2012's "The World's First Stock Exchange (and first bear raid, first dividend, first equity derivatives...)":
(VOC) $64.98 (+$13.84) (+27.1%) Shares in the spice purveyor soared on word that the three sturdy galleons dispatched two years afore had been sighted off the coast of Cape Verde, returning from their dangerous voyage to the exotic Orient with their casks brimful of redolent cinnamon, cardamom, and mysteriously intoxicating curried powder.
Okay, that's actually America's Finest News Source.

And after that ramble, the headline story from World Maritime News, Jan. 14:

The Port of Rotterdam is investing in the development of Pronto, an application for standardized data exchange on port calls.
Almost half of the shipping companies, agents, terminals and other nautical service providers in the port use the system to plan, implement and monitor their activities during a port call, as explained by the Port of Rotterdam.

Pronto uses artificial intelligence to predict vessel arrival times in the port. Artificial intelligence and big data are enabling the arrival times of vessels in sea and inland ports to be predicted earlier and with increased precision.

“Various factors influence a vessel’s arrival time. This includes the vessel type and cargo type, as well as the location, route, sailing speed and movements of other vessels in the vicinity,” Arjen Leege, Senior Data Scientist at the Port of Rotterdam Authority, said.

“We have mapped out the most crucial parameters. During this process, we sometimes dropped parameters or added new ones. For instance, it emerged that the number of times a vessel has already entered the Port of Rotterdam is also relevant,” he added.

Data sources include AIS and the port authority databases, including vessel arrival times at the loading platform. Port authority data scientists used the parameters to develop a self-learning computer model. Initially, this was fed with some 12,000 items of historical data. The computer recognised patterns in these, enabling it to learn to predict how much time a vessel needs to move from the loading platform to the berth.

“Computers can make complex connections must faster than people. That is actually the power of artificial intelligence. A computer’s predictive capacity increases when it is fed continuously with up-to-date data. We can now predict with 20-minute precision when arriving vessels will reach the berth,” Leege explained.

“The computer can also look further into the future and calculate the arrival times of vessels that are still some seven days away from the Port of Rotterdam. By looking further ahead, we will ultimately be able to predict a vessel’s entire route. Perhaps even some 30 days in advance, including multiple ports.”

“The more details we know at an earlier stage, the better we can plan our resources. If you know it will be busy in the port you can, for instance, increase the towage capacity in advance by requesting tugboats from another port to call at Rotterdam. Pronto can now also identify which vessels are bunkered, piloted or towed in the port. Possibly there will be new applications in the future that we’ve not considered as yet,” he continued.....

Monday, January 21, 2019

"Progress Isn't Natural:
Humans invented it—and not that long ago"

Professor Mokyr is an economist, historian and economic historian.
We are fans.
One of his more profound insights is a succinct observation on human nature:

"Sooner or later in any society the progress of technology will grind to a halt because 
the forces that used to support innovation become vested"

"In a purely dialectical fashion, technological progress creates the forces that eventually destroy it.
This result holds for a single closed economy."

—"The Gifts of Athena: Historical Origins of the Knowledge Economy"
Joel Mokyr
From The Atlantic, November 17, 2016:
Progress Isn't Natural
Humans invented it—and not that long ago.
How and why did the modern world and its unprecedented prosperity begin? Many bookshelves are full of learned tomes by historians, economists, political philosophers and other erudite scholars with endless explanations. One way of looking at the question is by examining something basic, and arguably essential: the emergence of a belief in the usefulness of progress.

Such a belief may seem self-evident today, but most people in the more-remote past believed that history moved in some kind of cycle or followed a path that was determined by higher powers. The idea that humans should and could work consciously to make the world a better place for themselves and for generations to come is by and large one that emerged in the two centuries between Christopher Columbus and Isaac Newton. Of course, just believing that progress could be brought about is not enough—one must bring it about. The modern world began when people resolved to do so.

Why might people in the past have been hesitant to embrace the idea of progress? The main argument against it was that it implies a disrespect of previous generations. As the historian Carl Becker noted in a classic work written in the early 1930s, “a Philosopher could not grasp the modern idea of progress ... until he was willing to abandon ancestor worship, until he analyzed away his inferiority complex toward the past, and realized that his own generation was superior to any yet known.” With the great voyages and the Reformation, Europeans increasingly began to doubt the great classical writings on geography, medicine, astronomy, and physics that had been the main source of wisdom in medieval times. With those doubts came a sense that their own generation knew more and was wiser than those of previous eras.

This was a departure from the beliefs of most societies in the past, which were usually given to some measure of “ancestor worship”—the belief that all wisdom had been revealed to earlier sages and that to learn anything one should peruse their writings and find the answer in their pages. In the Islamic world, wisdom was found in the Koran and the Hadith (which consists of sayings and acts attributed to the prophet Muhammad); in the Jewish world it was the Torah, the Talmud, and the sayings of Chazal; in China, wisdom was contained in Sishu Jizhu, the four books of commentary on Confucius compiled in the 12th century. In late medieval Europe, wisdom was found in a limited number of ancient texts, above all those written by Aristotle.

The respect for classical texts started to fade away in Europe in the 16th century and went into a meltdown in the 17th, when more and more of the ancient certainties were questioned and then found to be incorrect. If the classic authorities could be wrong about so many things, why would should they be trusted about anything? The English philosopher William Gilbert, the author of a famous book on magnetism, sounded downright impudent when he wrote in 1600 that he was not going to waste time on “quoting the ancients and the Greeks as our supporters, for neither can paltry Greek argumentation demonstrate the truth more subtly nor Greek terms more effectively.”

Many of the widely believed propositions of classical science collapsed under close examination. The examples piled up. Above all, the belief that the earth was at the center of the universe, the centerpiece of ancient cosmology, withered away. But there were so many others: Aristotle had insisted that all the stars apart from the planets were immutable and fixed, but in 1572 a young Danish astronomer named Tycho Brahe observed a supernova and realized that Aristotle had been wrong. Even more striking, Aristotle had written that the tropical areas around the equator were so torrid as to be uninhabitable—but Europeans found people living and thriving in such regions in Africa, America, and India. By 1600, much of ancient wisdom had crumbled.

Worse was to come: After 1600, Europeans developed scientific instruments that allowed them to see things the ancient writers could never have imagined. No wonder they began to feel superior: Ptolemy had no telescope, Pliny had no microscope, Archimedes had no barometer. The great classical writers may have been smart and well-educated, but European intellectuals thought of themselves as equally intelligent and better informed—and thus able to see things the ancients could not. Hence, everything must be tested with real evidence, not on the say-so of authorities who had lived 1,500 years earlier. The motto of the Royal Society, which was founded in 1660 in London, was in nullius verba—“on no one’s word.” Skepticism was the taproot of all knowledge. Even the Bible itself began to be examined critically, not least by Baruch Spinoza, who cast doubt on its divine origins and saw it as just another text.

Tradition did not give up without a fight. In the closing decades of the 17th century, an intellectual battle occurred between two groups, the ancients and the moderns. People in all seriousness debated the question of who was better, the writers and philosophers of Greek and Roman antiquity or those of their own age. This controversy was memorably mocked by the great satirist Jonathan Swift in his Battle of the Books, in which he described an absurd physical battle between modern writers and those of antiquity, not unlike the Monty Python skit hundreds of years later in which caricatures of Greek and German philosophers compete in a soccer match.

While the question of whether Sophocles was as good a playwright as Shakespeare is clearly a matter of taste, the questions of who was right about the speed of falling objects, the circulation of blood, the orbits of heavenly bodies, or the spontaneous generation of organisms were not, and the answers were becoming increasingly clear. By 1700, in Europe, the battle had been won decisively, and ancient writings on science and medicine were treated with condescending respect. A leading textbook in natural philosophy published in 1755 (and still taught a century later) started off by noting that “it is a matter of no small surprize to think how inconsiderable a progress the knowledge of nature had made in former ages ... compared with the vast improvements it has received ... of latter times.” It went on, “Philosophers of former ages buried themselves in framing hypotheses ... without any foundation in nature [and] so lame and defective as to not answer those very phaenomena for whose sakes they had been contrived.”

It was a turning point when intellectuals started to conceive of knowledge as cumulative. In the past this had been questionable: Much ancient knowledge, after all, had been lost when manuscripts were destroyed. But after 1500, the printing press and the proliferation of libraries made such losses increasingly unlikely. The moderns could know what the ancients did, but they continuously added to the stock of useful knowledge. The young Blaise Pascal, for instance, saw the world of knowledge as a single infinitely-lived individual, “incessantly learning.” A generation later, his compatriot Bernard de Fontenelle (now largely forgotten, but a central figure in the intellectual world of his day) asserted that in his age a truth hitherto unknown—justesse, he called it—ruled. He predicted that in the future this truth would go much further....
[but then Twitter was invented and shot that idea all to hell]

...MORE (Mokyr, not Climateer)
Related, earlier today: "The Wizard and the Prophet: Two Remarkable Scientists and Their Conflicting Visions of the Future of Our Planet"

Previous appearances of the Mokyr channel:
Economists Debate: Has All the Important Stuff Already Been Invented? 

"Technopessimism Is Bunk"

"Mokyr: 'How Europe became so rich":
Because Dutch is the language of love?
Then I give up. How did Europe become so rich?

"The Wizard and the Prophet: Two Remarkable Scientists and Their Conflicting Visions of the Future of Our Planet"

If I were a betting man I'd go with Borlaug.
From The Inquisitive Biologist:

Book review – The Wizard and the Prophet: Two Remarkable Scientists and Their Conflicting Visions of the Future of Our Planet
If I asked you to propose solutions to some of the world’s problems and future challenges, things such as overpopulation, food production, hunger, soil erosion, resource depletion, energy production etc., what ideas would you put forth? Most likely, your proposals would build on the intellectual legacy of two men you have never heard of. Allow American journalist and writer Charles C. Mann to introduce you to ecologist William Vogt, father of the environmental movement, and Nobel-Peace-Prize-winning plant breeder Norman Borlaug, instigator of the agricultural Green Revolution.
Mann has written a big, chunky book that is a biography of these two men. By scouring archives of correspondence and written material left by both men, and through interviews with people who knew them, he gives a detailed and deeply researched picture of their lives and careers, and how these came to shape the way they think.
Both men saw the same problems facing the world in the 1930s and 40s, but championed opposite solutions. William Vogt, the titular prophet, saw doom and gloom in our future if we didn’t rapidly curb consumption and population growth. His 1948 book The Road to Survival laid the blueprint for the familiar brand of apocalyptic environmentalism that was later espoused by Paul Ehrlich’s The Population Bomb and the Club of Rome’s The Limits to Growth (Limits to Growth: The 30-year Update is a relevant sequel to that work), and he is the godfather of the idea of sustainable development. Norman Borlaug, the titular wizard, meanwhile saw opportunities and was a fierce believer in the power of science and technology to make a difference. His work to improve wheat varieties through systematic cross-breeding and careful use of agronomic techniques launched the green revolution that greatly increased global wheat harvests and staved off famine. Though both men are no longer alive, their legacy lives on, and their disciples still argue amongst each other, perhaps more bitterly than ever.

“Vogt […] saw doom and gloom in our future [while] Borlaug […] was a fierce believer in the power of science and technology to make a difference”

Next to a dual biography, Mann also spends a significant part of The Wizard and the Prophet looking at four great environmental challenges, asking how Vogtians and Borlaugians have dealt with them, or propose to do so. There is food, where the two views clash in organic agriculture vs. biotechnology such as GMOs. There is freshwater, where low-tech solutions such as reducing water consumption, recycling rainwater, and drip irrigation are pitched against high-tech solutions such as large-scale desalination plants, dams, and pipelines. There is energy, where renewables such as solar and wind energy face off against nuclear and fossil fuels (though interestingly, there is also a conflict between small, distributed forms of solar and wind power versus large centralised wind and solar farms). And then there is climate change, where Vogtians champion renewables to stabilise carbon dioxyde levels, and the planting of forests to reduce it, while Borlaugians champion high-tech solutions to combat it, such as carbon capture and storage (CCS) and geoengineering (see Morton’s The Planet Remade: How Geoengineering Could Change the World for a readable introduction).
So, Vogtian or Borlaugian, prophet or wizard, which are you? The answer is likely to be a bit of both. As Mann also points out, these two men represent ends of a continuous scale. Personally, for example, I am sceptical of some of the claims put forth by the organic agriculture movement and am an unabashed cheerleader of genetic modification. I intend to read Conventional and Organic Farming: A Comprehensive Review through the Lens of Agricultural Science to back myself up with more data, Tomorrow’s Table: Organic Farming, Genetics, and the Future of Food offers a rapprochement of sorts, while my review of Seeds of Science: Why We Got It So Wrong on GMOs pretty much sums up my views on that topic. But where climate change is concerned, geoengineering sounds like a bridge too far to me.

“But I feel we are missing part of the picture here […] what of overpopulation?”

But I feel we are missing part of the picture here. And so does Mann. What of the mother-of-all-problems: overpopulation? Vogt had outspoken views on fertility reduction and birth control but Borlaug remained mute on the topic if I am to believe Mann. There is a third school of thought, a more misanthropic and nihilistic view that is common amongst biologists and that I strongly sympathise with. Mann speaks to that charming rebel Lynn Margulis, who plainly says that humans are destined to wipe themselves out, as all successful species must, Vogtian or Borlaugian fixes notwithstanding. Until we learn to control our population numbers, she likens us to bacteria in a petri-dish, our biology urging us to procreate until we have used up all available resources....MORE 
On second thought if the nomenclature is "Vogtian or Borlaugian"....wait, why do I suddenly think of an Armenian wedding?

Xiaomi pursuing US$1.46 bn ‘AIoT’ expansion strategy

China is taking this stuff pretty seriously.
From the Asia Times:

Chinese phone maker turns its attention to smart appliances market 
Chinese phone maker Xiaomi is planning to invest more than 10 billion yuan (US$1.46 billion) on AIoT – which stands for “All in the Internet of Things” – in the next five years, Securities Daily reported.

Xiaomi has been developing this strategy for a long time. At the end of last year, Xiaomi set up another sales department, which, in addition to phone sales, is responsible for selling TVs and home appliances.

Xiaomi recently invested in TCL a continuously expanding company that makes and sells TVs, refrigerators and panels.

However, a company insider said the mobile phone is still Xiaomi’s core business and this will not change.

The insider revealed that Xiaomi phones will enter more international markets this year. At the same time, IoT equipment such as smart TVs will begin to enter the global market and will be aggressively promoted.
Also at Asia Times:
Tokyo’s lost decade: Lessons for Beijing, Bangkok and London

Asia Times homepage  

"A Deep Dive Inside The Market's Toxic 'Liquidity-Volatility-Flows' Feedback Loop"

They are not kidding when they said "A deep dive".

From ZeroHedge, January 16:
If one asks traders what was the common market theme over the fourth quarter, among the various (often angry) answers, one will stand out: general prevailing chaos, manifesting itself in soaring volatility which coupled with record low liquidity and a sharp pick up in trading volume, resulted in disjointed, erratic price action that crushed all momentum and trend-following strategies (which these days is most of them).

Commenting on this phenomenon among others, two weeks ago JPMorgan quant Marko Kolanovic said, correctly, that "liquidity has become to a large extent driven by market volatility" reinforcing a negative feedback loop between volatility, liquidity and investors flows, and as the most recent examples he cited the unprecedented drop in futures market depth or "record low liquidity" we discussed previously (shown in the chart below), the currency flash crash on Jan 2, or the equity market “upside crash” on December 26.
This topic was then picked up by Goldman, which expanded an this analysis by accounting for the third spoke of the market's unholy trinity, namely trading volume, and how it impact the reflexive feedback loop between liquidity and volatility (readers can reread Goldman's comprehensive market structure assessment at the following post).

So in a follow up attempt to explain the nuances of the recent violent market moves (in response to what appears to have been significant client confusion as most investors are still unaware that in the new abnormal, "liquidity is the new leverage" as Goldman Sachs explained last July), JPM's head quant Marko Kolanovic has published one of his most in-depth, and objectively informative, notes in months elaborating on the feedback loop between volatility, liquidity, and flows, a loop which he calls simply "market fragility" (something Goldman has also repeatedly touched upon, most recently in "Goldman: 2019 - Lower Liquidity, Higher Vol, More Fragile.")

By way of background, Kolanovic says that "interest for this topic comes from various clients – those that are assessing the impact of flows to the broad market and their portfolios (fund managers), those that position for and anticipate these flows (speculators), and those that are assessing the robustness of different systematic investments (investors)."

So in order to provide some additional clarity to clients, first the quant demonstrates the link between Volatility and Liquidity, something he did several weeks ago, while demonstrating how market depth – the key measure of liquidity – got decidedly worse over the past decade as central banks took over.
Figure 1 shows the relationship between S&P 500 futures market depth and the VIX. One can notice that this relationship is very strong and nonlinear (e.g., market depth declines exponentially with the VIX). Given that an increase in volatility often results in systematic selling, this relationship is the key to understand market fragility and tail events. The second question was if this relationship was always the same or the situation got worse over time. To answer this we show the historical relationship between liquidity and the VIX over time (Figure 2, rolling regression slope between liquidity and the VIX). One can see that the negative relationship between liquidity and the VIX got worse over the past decade (note that an exponential relationship can be locally approximated with a linear relationship and tracked over time).
Finally, we note that at times of high volatility, the VIX is almost the sole driver of market liquidity. Figure 3 shows the % of liquidity variation that can be explained with the VIX over time (rolling R-squared). The higher the VIX, the more liquidity is driven by the VIX, and recently up to ~80% of liquidity variations were explained by the VIX. To conclude, we showed that there is a negative relationship between volatility and liquidity, that this relationship is getting stronger over time, and that it is particularly strong during times of elevated volatility.
Having covered the two core spokes of modern market (mal)function, namely liquidity and volatility and their constant interplay, Kolanovic than shows that volatility also plays a significant role in determining the flows from various systematic strategies (he defines systematic flows to include derivatives hedging flows, passive and quantitative investment strategies flows, insurance industry and programmatic market making flows)....

Capital Markets: "Chinese Data and UK Brexit Start New Week"

From Marc to Market:
Overview: Mixed data from China and the anticipation of Prime Minister May's "Plan B" are the main talking points, while US stock and bond markets are closed today. Asia Pacific equities were higher, while European markets have failed to follow suit. Benchmark 10-year bond yields are mostly softer, with the on-the-run Japanese Government Bond yield dipping back into negative territory. The US dollar is narrowly mixed, gaining a little against the dollar-bloc currencies and sterling while slipping against the euro, yen, and Scandis. Most emerging market currencies are trading heavier, but the euro is helping the central and eastern European currencies steady. Oil prices edged higher initially but have reversed to trade marginally lower.

Asia Pacific
The uptick in China's December retail sales and industrial output seems to offset the slightly disappointing Q4 GDP figures. Retail sales rose 8.2% year-over-year, up from 8.1%. Economists had forecast an unchanged report. Industrial output rose 5.7% year-over-year in December. The Bloomberg survey showed a median forecast for a 5.3% pace after 5.4% in November. Fixed asset investment was unchanged at 5.9%. Economists had anticipated a small increase. Fourth quarter GDP slowed to 6.4% from 6.5%, the slowest pace since 2009. The main idea is that, to the extent that one is willing to take the data at face value, the gains in retail sales and industrial production suggests that growth is finding a bottom and that the various efforts to stimulate the economy may have begun working.

Last week, press reports played up the debate within the Trump Administration over tactics ahead of China's Vice Premier's visit next week to Washington. The idea that Treasury was in some way sympathetic to easing tariff pressure on China was quickly and now repeatedly denied. Today's reports suggest, as we suspected, there has been little progress in what is a key issue for the Trump Administration and that is intellectual property rights, not tariff barriers to trade per se. Separately, but related, the Administration is reportedly drafting measures that would impose restrictions on state-owned Chinese electronic firms operating in the US. It does not mention Huawei or ZTE by name.

The dollar is consolidating in a narrow range near the best levels seen before the weekend. It has been confined to about a quarter of a yen range above JPY109.50, The five-day moving average has crossed above the 20-day moving average for the first time since December 18, reflecting the recovery from the flash crash low that saw it break below JPY105 briefly. The BOJ meets in the middle of the week. It is not expected to take fresh initiatives. Despite the gradual reduction in its bond purchases (tapering by another name?), and the widening of the band last year under the Yield Curve Control policy to 20 bp, the yield, after some initial volatility, has been straddling zero. The Australian dollar is holding above last week's low just below $0.7150. The upside momentum faded a little above $0.7200. A break of $0.7100 is needed to confirm a top.

UK Prime Minister May is to present Plan B to the House of Commons later today. The leaks in the media suggest it is Plan A with changes in the backstop provision, which EC has indicated it is not willing to negotiate further. May continues to rule out alternatives, including a postponement of the actual exit date, a second referendum, and remaining in a customs union. Some reports suggest that she wants to re-open the Good Friday Agreement that made for peace between Northern Ireland and the Republic. The House of Commons is to vote on Plan B next week. It is not just officials that are terribly divided on what to do next, but so are the people. According to a recent ICM poll (January 16-18), the most popular choice with 28% support was no-deal exit and on WTO terms. In second place with 24% was to start the process toward a second referendum. A general election was favored by 11%, while 8% wanted to press ahead with May's plan.

Before the weekend, the Bank of Italy cut is GDP forecasts to 0.6% and 0.9% from 1.0% and 1.1% for this year and next respectively....


News You Can Use: "...Budapest Had a Smile Club to Stop People from Killing Themselves in the 1930s"

Speaking of major rivers of Europe, here's a repost from 2016:

Have you waited too long to get that private compound hidey hole in order?
Not to worry, bunky. From Vintage Everyday:

 “In the Smile School of Budapest, a woman looks at herself in the mirror with a grim bandage on her face.” Het Leven, 1937.
An epidemic of suicide sweeps through Budapest, and the city tries to stop it in an odd way: by creating a “Smile Club”, where people are taught to smile again. The initiative is covered in the 17 October 1937 issue of Sunday Times Perth:

Budapest, Saturday

Although a magnet for tourists from all over the world, Budapest has for several years been known to its own people as The City of Suicides.

Budapest suffered badly after the war and has received unpleasant publicity from the number of cases of self-destruction occurring every year within its boundaries. Some of them are alleged to have been inspired by the Budapest song, “Gloomy Sunday”, but, be that as it may, the suicide rate in Budapest is definitively very high.

The favorite method adopted by most Budapest melancholics is drowning, and patrol boats are stationed along the boundary near the bridges to rescue citizens who seek consolation in the dark waters of the Danube.

Now, however, a “Smile Club” has been inaugurated to counteract the suicide craze. It was originally began more as a joke by a Professor Jeno and a hypnotist named Binczo, but somehow it caught on. The organisers have now a regular school and guarantee to teach the Roosevelt smile, the Mona Lisa smile, the Clark Gable smile, the Dick Powell smile, the Loretta Young smile, and various other types, the rates varying according to the difficulties encountered.

Jeno says the methods employed at his school, aided by better business conditions in Budapest, are making smiling popular, and before long it is hoped that the name of Budapest will be change to the City of Smiles.”
In the Smile School of Budapest, a woman looks at the smiling woman’s faces held in front of her. 
On the wall, two smiles and the picture of Mona Lisa.” Het Leven, 1937.
Gloomy Sunday, the popular 1933 hit of Rezső Seress was in fact propagated by the press as “the Suicide Song” or simply “the Killer Song” in more than a hundred languages all over the world, claiming that dozens, or even hundreds of people committed suicide because of it....MUCH MORE

"Europe’s Most Important River Is Running Dry" (not to worry: the floods will be biblical)

From Bloomberg, Jan. 17:

The Rhine waterway, critical to moving coal, car parts, food and thousands of other goods, risks becoming impassable because of climate change.

Old school rent-extraction device
Kevin Kilps’s car ferry churns the waters of Germany’s Rhine river as he steers toward the bank opposite Kaub, a scenic village just south of the rocky outcropping named after the legendary siren Lorelei.
It’s typically a busy stretch of waterway. On a normal day, the commuter ferry vies for space with cargo barges shuttling supplies to factories in the south and German goods to ports on the North Sea as well as tourist boats heading for nearby medieval castles and vineyards.

After a prolonged summer drought, the bustling traffic at one of the shallowest points on the Rhine ground to a halt for nearly a month late last year, choking off a critical transport artery. The impact damped Germany’s industrial machine, slowing economic growth in the third and fourth quarters. It was the latest sign of how even advanced industrial economies are increasingly fighting the effects of global warming.

“You can see the water levels are lower each year,” said Kilps, who added extra flotation equipment to the 150-ton boat during the stoppage to enable it to finally cross the river again. “It’s scary to watch the climate changing.”

With its source high in the Swiss Alps, the Rhine snakes 800 miles through the industrial zones of Switzerland, Germany and the Netherlands before emptying into the sea at Rotterdam, Europe’s busiest port. It serves as a key conduit for manufacturers such as Daimler AG, Robert Bosch GmbH and Bayer AG.

When low water halted shipping this summer, steelmaker Thyssenkrupp AG was forced to delay shipments to customers like automaker Volkswagen AG as it couldn’t get raw materials to a mill in Duisburg.

Constraints on the Rhine cost BASF SE around 250 million euros ($285 million) by pushing the chemical maker to use more expensive transport options. In a recent newspaper interview, BASF Chief Executive Officer Martin Brudermueller called for major infrastructure investments such as locks and dams that can release water to ensure shipping lanes remain open....MORE
Meanwhile, from the Associated Press, January 5, i.e. at least two snowfalls ago:

As Austria warns of snow, Germans, Dutch prepare for floods
BERLIN (AP) — Authorities in Austria are warning that more snowfall will increase the already high risk of avalanches, while hundreds of people in the country are unable to leave their homes because of blocked roads due to the severe weather conditions.

German news agency dpa reported that in southern and eastern Germany people were also bracing for further snowfall, while in the northern coastal city of Hamburg residents were preparing for a storm flood caused by a winter gale.

In the neighboring Netherlands, Amsterdam’s busy Schiphol Airport warned of delays and cancellations. Dutch carrier KLM canceled 159 flights to and from European destinations.
In northwestern Dutch coastal regions expected to be hardest hit by strong winds and wild seas, local water authorities began checking dikes to make sure they were not damaged.
We keep pretty good track of the water level.
Also castles and obscure poetry:
A soldier of the Legion lay dying in Algiers,
There was lack of woman's nursing, there was dearth of woman's tears....
— Caroline Elizabeth Norton
 "Bingen on the Rhine"

During the worst of the drought as the Elbe dried up the stones marking previous low water became visible:

Engravings on a ‘hunger stone’ have been revealed in the Elbe River in the Czech Republic due to drought. (AP Images)

Sunday, January 20, 2019

Equities: Dear Santa,

Thank you for The Best Christmas Ever......scratch that: Thank you for the best Christmas in a long, long time:

I'm done playing with the triple leveraged long ETFs you brought me and will put them away.
Regarding the options on the S&P e-mini futures: what is my tax basis on a gift?
Thanks Santa

Dec. 26
Equities: Thank You Santa
I received the options on the S&P futures and I have to say, earlier this morning I thought XXL was far too big
And on top of that I was a bit nervous about having gone public with December 20's Hulbert: "Santa Claus is coming to Wall Street — after Christmas", reiterated as the first sentence in Dec. 23's Equities: "Nothing Goes to Hell in a Straight Line, Not Even Stocks".
If you hadn't come through all those young people on the internet might have lost faith and stopped believing,
But you delivered Santa, you did!
Right down to the minute!....
Dec. 20 
Hulbert: "Santa Claus is coming to Wall Street — after Christmas"
This piece was published ~45 hours—i.e. ~1000 DJIA points—ago. Some say Santa has left the building or, even worse, that there is no Santa but that question was answered, in the affirmative, by the New York Sun long ago (1897):
DEAR EDITOR: I am 8 years old.
Some of my little friends say there is no Santa Claus.
Papa says, ‘If you see it in THE SUN it’s so.’
Please tell me the truth; is there a Santa Claus?

VIRGINIA, your little friends are wrong. They have been affected by the skepticism of a skeptical age. They do not believe except they see. They think that nothing can be which is not comprehensible by their little minds. All minds, Virginia, whether they be men’s or children’s, are little. In this great universe of ours man is a mere insect, an ant, in his intellect, as compared with the boundless world about him, as measured by the intelligence capable of grasping the whole of truth and knowledge.

Yes, VIRGINIA, there is a Santa Claus. He exists as certainly as love and generosity and devotion exist, and you know that they abound and give to your life its highest beauty and joy. Alas! how dreary would be the world if there were no Santa Claus. It would be as dreary as if there were no VIRGINIAS. There would be no childlike faith then, no poetry, no romance to make tolerable this existence. We should have no enjoyment, except in sense and sight. The eternal light with which childhood fills the world would be extinguished....MORE
And here to answer the question once again is Mark Hulbert at MarketWatch, Dec 18, 2018 5:18 p.m. ET.
While calendar-based trades are usually bunk, at this time of year it's good to reflect on the true meaning of Christmas.

Santa will be a little late with presents for stock investors...
...Virginia, the DJIA may be down 453.22 (-1.94%) at 22,870.44 but Santa is coming, so ask him for some OTM calls on the ES. Or get your name on some triple leveraged long ETFs. He's on his way.

And I will drop Mr. Hulbert a line re: the 1914 shutdown and reopening and remind him he knows the details and could have taken another paragraph to explain index construction.

Well, as we all know the major indices continued lower right up until the Christmas Eve early close, the DJIA's intra-day low that session was 21,792.20 but come Boxing Day: Hooray!

And now a break in the action.

Defoe on Fake News: "The anatomy of Exchange-Alley: or, a system of stock-jobbing"

This is a placeholder for some stuff we have scheduled for later in the year.

Along with the publication of Robinson Crusoe in April 1719 and A Journal of the Plague Year in March 1722 Daniel Defoe published this piece, 1719:


Here is the version at Oxford's Text Archive, keeping in mind that this was a year before the South Sea Bubble, in which Defoe also played a part:

THE ANATOMY OF Exchange-Alley: OR, A Syſtem of STOCK-JOBBING.
Proving that Scandalous Trade, as it is now carry'd on, to be Knaviſh in its Private Practice, and Treaſon in its Publick:
Being a clear Detection
  • I. Of the Private Cheats uſed to Deceive one another.
  • II. Of their Arts to draw Innocent Families into their Snares, underſtood by their New Term of Art (viz.) (being let into the Secret.)
  • III. Of their Raiſing and Spreading Falſe News to Ground the Riſe or Fall of Stocks upon.
  • IV. Of their Joyning with Traytors in Raiſing and Propagating Treaſonable Rumours to Terrify and Diſcourage the People with Apprehenſions of the Enemies to the Government.
  • V. Of their Improving thoſe Rumours, to make a Run upon the Bank, and Ruin publick Credit.
  • VI. Of the dangerous Conſequences of their Practices to the Government, and the Neceſſity there is to Regulate or Suppreſs them.
To which is added, Some Characters of the moſt Eminent Perſons concern'd now, and for ſome Years paſt, in Carrying on this Pernicious Trade.
The Second Edition Corrected.
LONDON: Printed for E. Smith near Exchange-Alley. 1719. Price One Shilling.
1. THE ANATOMY OF Exchange-Alley, &c.
[Page 1] THE General Cry againſt Stock-Jobbing has been ſuch, and People have been ſo long, and ſo juſtly Complaining of it as a publick Nuſance; and which is ſtill worſe, have complained ſo long without a Remedy, that the Jobbers, harden'd in Crime, are at laſt come to exceed all
[Page 2] bounds, and now, if ever, ſleeping Juſtice will awake, and take ſome Notice of them, and if it ſhould not now, yet the diligem Creatures are ſo ſteddy to themſelves, that they will ſome time or other, make it abſolutely neceſſary to the Government to demoliſh them.

I know they upon all Occaſions laugh at the Suggeſtion, and have the Pride to think it impracticable to reſtrain them; and one of the top of the Function the other Day, when I caſually told him, That if they went on, they wou'd make it abſolutely neceſſary to the Legiſlature, to ſuppreſs them, return'd, That he believ'd it was as abſolutely neceſſary for 'em to do it now, as ever it could be; But how will they do it? 'Tis impoſſible, ſaid he, but if the Government takes Credit, their Funds ſhould come to Market; and while there is a Market we will buy and ſell; there is no effectual way in the World, ſays he, to ſuppreſs us but this, viz. That the Government ſhould firſt pay all the publick Debts, redeem all the Funds, and diſſolve all the Charters, viz. Bank, South-Sea, and Eaſt-India, and buy nothing upon Truſt, and then, indeed, ſays he, they need not hang the Stock-Jobbers, for they will be apt to hang them ſelves.

[Page 3] I muſt confeſs, I in part agree that this is an effectual way, but I am far from thinking it the only way to deal with a Confederation of Uſurers, who having ſold the whole Nation to Uſury, keep the Purſe-Strings of Poor and Rich in their Hands, which they open and ſhut as they pleaſe.
But before I come to the needful ways for reſtraining thoſe People, I think 'twill be of ſome Service to expoſe their Practices to common view, that the People may ſee a little what kind of Dealers they are.
And firſt, they have this peculiar to 'em, and in which they out-do all the particular pieces of publick Knavery that ever I met with in the World, viz. That they have nothing to ſay for it themſelves; they have, indeed a particular Stock of hard Ware, as the Braziers call it, in their Faces, to bear them out in it; but if you talk to them of their Occupation, there is not a Man but will own, 'tis a compleat Syſtem of Knavery; that 'tis a Trade founded in Fraud, born of Deceit, and nouriſhed by Trick, Cheat, Wheedle, Forgeries, Falſhoods, and all ſorts of Deluſions; Coining falſe News, this way good, that way bad; whiſpering imaginary  

[Page 4] Terrors, Frights, Hopes, Expectations, and then preying upon the Weakneſs of thoſe, whoſe Imaginations they have wrought upon, whom they have either elevated or depreſs'd. If they meet with a Cull, a young Dealer that has Money to lay out, they catch him at the Door, whiſper to him, Sir, here is a great piece of News, it is not yet publick, it is worth a Thouſand Guineas but to mention it: I am heartily glad I met you, but it muſt be as ſecret as the black ſide of your Soul, for they know nothing of it yet in the Coffee-Houſe, if they ſhould, Stock would riſe 10 per Cent. in a moment, and I warrant you South-Sea will be 130 in a Week's Time, after it is known. Well, ſays the weak Creature, prethee dear Tom what is it? Why really Sir I will let you into the Secret, upon your Honour to keep it till you hear it from other Hands; why 'tis this, The Pretender is certainly taken and is carried Priſoner to the Caſtle of Millan, there they have him faſt; I aſſure you, the Government had an Expreſs of it from my Lord St----s within this Hour. Are you ſure of it, ſays the Fiſh, who jumps eagerly into the Net? Sure of it! why if you will take your Coach and go up to the Secretaries-Office, you may be ſatisfied of it your ſelf, and be down again in Two Hours, and in

 [Page 5] the mean time I will be doing ſomething, tho' it is but little, till you return.
Away goes the Gudgeon with his Head full of Wildfire, and a Squib in his Brain, and coming to the Place, meets a Croney at the Door, who ignorantly confirms the Report, and ſo ſets fire to the Mine; for indeed the Cheat came too far to be baulkt at home: So that without giving himſelf Time to conſider, he hurries back full of the Deluſions, dreaming of nothing but of getting a Hundred Thouſand Pounds, or purchaſe Two; and even this Money was to be gotten only upon the Views of his being before-hand with other People.

In this Elevation, he meets his Broker, who throws more Fire-works into the Mine, and blows him up to ſo fierce an Inflamation, that he employs him inſtantly to take Guineas to accept Stock of any Kind, and almoſt at any Price; for the News being now publick, the Artiſt made their Price upon him. In a Word, having accepted them for Fifty Thouſand Pounds more than he is able to pay, the Jobber has got an Eſtate, the Broker 2 or 300 Guineas, and the Eſquire remains at Leiſure to ſell his Coach and Horſes, his fine Seat and rich Furniture, to make good the Deficiency  

[Page 6] of his Bear-Skins, and at laſt, when all will not go through it, he muſt give them a Bruſh for the reſt....

"James K. Galbraith reviews Robert Skidelsky's 'Money and Government: The Past and Future of Economics'"

From American Affairs Journal, Volume II, Number 4 (Winter 2018):

Money and Government:
The Past and Future of Economics
by Robert Skidelsky
Yale University Press, 2018, 460 pages 
In this remarkable work, Robert Skidelsky—historian, biographer, and tribune of Keynesian ideas in the House of Lords—unites his experience, knowledge, and talents in a sweeping account of money and power. His topic is not money and power in the familiar (one might say Trumpish) sense of the use of one to obtain the other. Rather, he presents an intellectual history of the control over money as an instrument of state power. 

Whether money ought to be conceived as such an instrument is a matter of historic controversy and remains a contested theme in political economy. On one side are those who justify government control over money as a tool of policy: mercantilists, imperialists, war-fighters (as a point of practical necessity), and the followers of John Maynard Keynes. On the other side we find those seeking a stable, automatic, rule-bound economy, independent of politics and in the effective service of creditors over debtors, rich over poor. Here we find David Ricardo, Irving Fisher, Milton Friedman, and—until mugged by reality in 2008—Ben Bernanke. This is the battleground of silver against gold, of bank credit versus specie, of easy money versus tight, of full employment against inflation-targeting as the prime goal of policy. Money and Government brings these battles and their principals into crisp focus over centuries of mostly British but also American political economy. 

Why Britain? Neither money nor banking originates there. Money, so far as we know, starts with the tax-and-tribute systems of early urban Mesopotamia; banking, in a more or less modern form, dates from the Italian city-states and seventeenth-century Amsterdam. But Britain was the world’s dominant power from the late eighteenth to the mid-twentieth centuries. It controlled major gold reserves in Australia, South Africa, and the Yukon; it was the hub of the cotton trade that fueled the industrial revolution; its banks financed extractive development from Argentina to India. So the relevant doctrines of monetary thought developed there. And that which developed elsewhere—for instance, the work of Friedrich List in Germany, Knut Wicksell in Sweden, or Michał Kalecki in Poland—is known to the English-speaking world only to the extent that English and Scottish political economists have taken it up.  
In the Long Run, No One Learns Anything 
Skidelsky traces the British monetary battles to the 1690s, when a war-induced silver shortage led to an epidemic of clipped coins. There were two solutions: devalue the money by producing smaller coins with less silver, or revalue it by melting the clipped versions and minting new coins at full weight. Isaac Newton, Master of the Mint, favored the first (inflationary) course; John Locke, philosopher of property, favored the second. Locke won; chaos and depression ensued. The battle was joined again during the Napoleonic Wars—bullionists led by Ricardo beat out the Bank of England, supported by Malthus—and again in the mid-nineteenth century, with the Currency against the Banking Schools. By century’s end, the fight was in America: gold versus silver, McKinley versus Bryan, the crucifixion of mankind upon a cross of gold. 

In the twentieth century, with the gold standard in retreat, Wicksell and Fisher developed the quantity theory of money—more precisely a quantity of money theory of inflation. What really mattered was not the substance of money but control over how much of it there was. Good control would keep prices stable and debts good. Monetarism, the descendant doctrine of Milton Friedman, would triumph at the Federal Reserve with the arrival of Paul Volcker in 1979, even though Volcker was not himself committed to the theory. Chaos and recession ensued, and monetarism was abandoned in the world debt crisis of 1982. Truly nothing changes and very little is learned, over centuries, in economics. 

Skidelsky treats these great monetary battles primarily as struggles over ideas. Yet he is aware that behind ideas lie interests, and that the division of economic ideas into binary oppositions reflects the class opposition between creditors and debtors—one dominant and the other oppressed, but each always necessary to the existence of the other. The fact that ideas follow the interests that can pay for them accounts for much of the recurrence of spurious and indefensible ideas in economic thought. Skidelsky, however, is above all a historian of ideas, so this book is cast largely as an account of ideologies and intellectual debates and not of class struggles. There is no doubt, moreover, that some of the most meretricious zealots in the long history of economists’ service to power and wealth were also among the most fiendishly clever. 

The gold standard and the quantity theory of money have been succeeded in our day by rational expectations theory and dynamic stochastic general equilibrium modeling (don’t ask), and by their policy stepchild, inflation targeting. These are the doctrines of repute and respectability, the touchstones of academic and professional advancement in our time. They share an almost eschatological preoccupation with the condition of things in the long run—the economists’ version of the prophets’ paradise to come—and a willingness to absorb (or more accurately to inflict) pain and punishment in the present.  

Economists in this respect are unlike modern doctors. The arsenals of pain relief and fever reduction play little role in their toolkit—and where they do (“stimulus programs”) they are often treated as having long-term costs that offset the benefits in the short term. Our social doctors generally prefer to let events take their course, on the assumption that the patient always recovers. If intervention is indispensable, they say, then let it be surgery without anesthesia, so that the patient will remember next time that it is better not to get sick. Against this attitude Skidelsky is devastating: 
As we will have further reason to emphasize, the short run/long run distinction has had a baleful effect on economics and economic policy. It has served to protect its long-run equilibrium thinking from the assault of disruptions, and to justify policies of inflicting pain on populations. One may feel that insistence on the need for short-run pain (e.g. austerity) for the sake of long-run gain, when the short run can last decades and the long run may never happen, testifies to a refined intellectual sadism.  
The great modern anti-sadist was John Maynard Keynes, and Skidelsky, his definitive biographer, is uniquely placed to revive and interpret Keynes for this century. Keynes’s relevance here is as a theorist of money, who understood both the origins of money in state power and the role of banks in the modern credit-money economy. As a modern monetary economist, Keynes favored the aggressive relief of symptoms and mitigation of pain, not merely as a charitable gesture or guilty afterthought, but in the thoroughly modern medical sense that comfort and confidence speed the underlying processes of recuperation and recovery. Keynes’s legacy survives in monetary policy, in the language of the Federal Reserve Act and of the Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978, which call for full employment and price stability—a dual mandate. 

Yet Keynes also came to understand the full implications of his own view that money, which is created by banks through the act of making loans, could not be manipulated to full macroeconomic effect by central banks alone. Low interest rates were not enough. A willing debtor—a borrower—was essential. In the private business sector, the will to borrow would evaporate when the prospect of profit is not sufficiently strong. Hence the state had to serve as the borrower of last resort, running fiscal deficits as necessary to fill the gaps in total demand. This was the big contribution of Keynes’s capstone work, The General Theory. Skidelsky gives a fine summary of Keynes’s intellectual and policy triumph, and of how it came to grief due to inflation and the Phillips Curve, the ad hoc 1960s addendum linking high employment to inflation. The result was the monetarist reaction of the 1970s, eventually the rise of Margaret Thatcher in Britain, and, a bit later, of Ronald Reagan in the United States. 

A third part of Skidelsky’s narrative deals with the consolidation of anti-Keynesian thought in the 1980s and after, culminating in the financial catastrophe of 2007–10 and its aftermath. I do not find this section as satisfying as the two that came before, for two reasons. The first is that there are, in this generation of top-level economists, practically no original thinkers of the first rank. On the left, a leading voice such as Paul Krugman espouses a paper-thin version of 1960s textbook pseudo-Keynesian theory (the IS-LM model—again, don’t ask), which Skidelsky accurately dismisses as a “teaching tool.” In the center and on the right, the field is peopled by pompous mediocrities occasionally exposed as such—as in the film Inside Job. They hold their positions only through the interlocking tribalism of American academic life.  
Finance, Inequality, and the Financial Crisis 
Moreover, the global financial crisis brings us to the limits of macroeconomics. Skidelsky’s subject, he writes, is “money and government, and their relationship.” But the global financial crisis was about more than that. The three topics Skidelsky takes up here are inequality, the misgovernment of finance, and something obscure called “global imbalances.” As he seeks to explain them, he finds himself casting in deep and turbulent waters.  

On inequality Skidelsky makes an unfortunate (though not uncommon) choice to base his presentation largely on the work of Thomas Piketty...MORE

"What happens when Facebook goes down? People read the news"

From Chartbeat:
What would the world look like without Facebook? Chartbeat had a glimpse into that on Aug. 3, 2018, when Facebook went down for 45 minutes and traffic patterns across the web changed in an instant. What did people do? According to our data, they went directly to publishers’ mobile apps and sites (as well as to search engines) to get their information fix.  This window into consumer behavior reflects broader changes we see taking hold this year around content discovery, particularly on mobile. This is good news for publishers.

Traffic Trends Reverse
Despite volatility driven by algorithm shifts and intense news cycles, user demand for content (represented by traffic across the web) is quite stable. But the sources of that traffic are anything but static. In fact, we’ve seen a major reversal in the specific sources driving traffic to publisher sites in the last year.
Top Sources of Mobile Traffic Across Chartbeat Sites
Key shifts:
  • Mobile traffic has seen double-digit growth and surpassed desktop, which saw double-digit declines.
  • On mobile, Facebook is down nearly 40% since January 2017, while Google Search has seen a 2x growth in that same time period. That means increases in Google Search referral traffic have more than offset any declines in Facebook referral traffic.
  • Additionally — and of significant importance — mobile direct traffic to publishers is now greater than traffic sent by Facebook to publishers’ sites. This means consumers are now more likely to get their news by typing in a publisher URL or opening an app than by being referred through Facebook.
Mobile Content Discovery Apps Broaden
We’ve also observed content discovery habits changing, as “built-in” mobile aggregators emerge as meaningful referrers. While traffic driven by more traditional referrers like Yahoo, Twitter, and Outbrain has stayed roughly constant for the last 18 months, news aggregator apps that are built directly into the mobile phone or browser experience are now driving significant traffic to publishers. These apps have seen incredible growth:
  • Google Chrome Suggestions, a personalized newsfeed built into Chrome’s mobile browser, is up 20x.
  • News aggregator Flipboard is up 2x in the past year.
  • The new Google News app, which is pre-installed on Android devices, is up roughly 3x since it relaunched in May.
Built-in portal apps aren’t the only apps to watch; publisher-owned news apps are also making a comeback. According to the Digital News Report 2017 from Reuters Institute, weekly use of news apps in the U.S. was up roughly 40% in 2017. And Chartbeat data shows that app users are not just consuming more content, but they are also an incredibly loyal audience – 5.7x more loyal on average than visitors who arrive from platforms like Facebook and Google.

All of which makes the Aug. 3 Facebook incident even more interesting to observe....

"The Master Algorithm Is Going To Change Life As We Know It"

We've looked at the subject of this interview a few times, links after the jump.

From the sadly defunct Kernel magazine, December 2015:
It’s safe to say that most of us probably don’t spend a lot of time thinking about algorithms. We go to Amazon and notice we have new recommendations based on our previous purchases; we see that Netflix has carefully selected movies based on our past preferences. But we don’t necessarily think about what that means, or what’s going on behind the scenes. We probably think most about algorithms when they go awry, whether that’s yet another Facebook faux pas, a stomach-dropping flash crash on Wall Street, or a online shop selling tasteless T-shirts generated entirely by computers.
It’s in those moments that we’re reminded just how much of the world runs on algorithms: the sets of rules, increasingly byzantine and incomprehensible to humans, that govern all the computers around us. We’re reminded just how vulnerable we are when algorithms go bad (obligatory Skynet reference here); we’re reminded that their mistakes are not those humans make because, of course, algorithms are not human. 

Pedro Domingos has spent a lot of time thinking about algorithms. His new book, The Master Algorithm: How the Quest for the Ultimate Learning Machine Will Remake Our World, is an introduction to that world—and a report on the state of the art. He believes that we live in an age of algorithms, and sees a time when we may see a time when they radically remake our world—even more than they already have.
Via email, we discussed the difference between human and computer “thinking” and learning, how much of our lives are already influenced by algorithms, and what happens when the machines finally learn how to learn everything.

You say we live in the age of algorithms. How so, and why might we be unaware of just how many algorithms are working for—and possibly against—us every day? How is machine learning working behind the scenes in ways we don’t necessarily realize?
Everything computers do, they do using algorithms. Your cellphone, your laptop, your car, your house, and your appliances are all full of algorithms. But they’re hidden: You see the shiny gadget, but not what’s going on inside. Siri uses an algorithm to understand what you say, Yelp uses an algorithm to select restaurants for you, your car’s GPS system uses an algorithm to find the best route there, and the credit card reader uses an algorithm to take your payment. Companies use algorithms to select job applicants, mutual funds use them to trade stocks, and the NSA uses them to flag suspicious phone calls.

The difference between “regular” algorithms and learning algorithms is that the former have to be manually programmed by software engineers, explaining step by step what the computer needs to do, while the latter figure it out on their own by looking at data: Here’s the input, here’s the desired output, how do I turn one into the other? And what’s remarkable is that the same learning algorithm can learn to do an unlimited number of different things—from playing chess to medical diagnosis—just by being given the appropriate data.

What is the “master algorithm” of the title, and how is it different from, say, Ray Kurzweil’s singularity? What are some of the potential advances that the master algorithm could bring?
The master algorithm is an algorithm that is capable of learning anything from data. Give it data about the planets’ motions, inclined planes, and pendulums, and it discovers Newton’s laws. Give it DNA crystallography data and it discovers the double helix. From all the data in your smartphone, it learns to predict what you’re going to do next and how to help you. Perhaps it can even discover a cure for cancer by learning from a massive database of cancer patient records.

Other advances it could bring are: home robots; replacing the World Wide Web [with] a World Wide Brain that can answer your questions instead of just showing you Web pages; and a 360-degree recommendation system that knows you as well as your best friend and recommends not just books and movies but dates, jobs, houses, vacations—everything in your life.

Kurzweil’s singularity is the point at which artificial intelligence exceeds the human variety on Earth, and therefore becomes incomprehensible to us. Or, more precisely, that’s the “event horizon” of the singularity, like the event horizon of a black hole is the point beyond which even light cannot escape. Without the master algorithm, we won’t reach the singularity anytime soon. With it, AI will certainly accelerate, but I think we will still understand lots about the world, because the AIs will be working to serve us, by design. We may not understand how they produced what they give us, but we will understand what those products do for us, or we wouldn’t want them. Besides, the world has always been partly beyond our understanding. The difference is that now it’s partly designed by us, which is surely an improvement.

You describe the field as currently divided into “tribes,” each with a different approach to machine learning that can solve certain kinds of problems better than others, but with no tribe possessing the algorithm that can subsume all others—basically a machine-learning process that would let us answer all answerable questions. You compare that assumed master algorithm to the Standard Model of particle physics, or the central dogma of molecular biology: “a unified theory that makes sense of everything we know to date, and lays the foundation for decades or centuries of future progress.” That sounds like a big claim. What makes a master algorithm seem plausible, and what’s keeping our disconnected “tribes” from creating it?

Even some of the simplest learning algorithms have a mathematical proof that they can learn anything given enough data. So in that sense there’s no doubt that the master algorithm exists, and indeed some researchers in each of the tribes believe that they’ve already found it. But the catch is that the algorithm has to be able to learn what you want it to using realistic amounts of data and computation. Here we turn to the empirical evidence: Nature provides us with at least two instances of an algorithm that can learn anything (or almost), namely evolution and the brain. So we know that the master algorithm exists; the question is whether we can figure out what it is precisely and completely enough to write it down, in the same way that physicists write down the laws of physics as equations (which are themselves a kind of algorithm).

Unfortunately, the five tribes of machine learning are like the blind men and the elephant: One feels the trunk and thinks it’s a snake, another leans against the leg and thinks it’s a tree, yet another touches the tusk and thinks it’s a bull. What we really need is to take a step back and see the whole picture and how the pieces fit together. Ironically, this might be easier for someone who’s not already in the field and thinking along the previously laid tracks of the five tribes....MORE
Domingos is pretty important to a lot of the companies attempting to exploit Artificial Intelligence:
August 2018 
"Who needs democracy when you have data?"
April 2018
Machine Learning Guru Pedro Domingos on the Arms Race in Artificial Intelligence
February 2018
How Amazon Rebuilt Itself Around Artificial Intelligence
May 2017 
"Why Google Is Suddenly Obsessed With Your Photos"
June 2016 
Facebook's Race To Dominate Artificial Intelligence (FB)

Saturday, January 19, 2019

"The Most Powerful Person In Silicon Valley"

From Fast Company, January 14:

Billionaire Masayoshi Son–not Elon Musk, Jeff Bezos, or Mark Zuckerberg–has the most audacious vision for an AI-powered utopia where machines control how we live. And he’s spending hundreds of billions of dollars to realize it. Are you ready to live in Masa World?
It’s a bright September morning in San Carlos, California, and Masayoshi Son, chairman of SoftBank, is throwing me off schedule. I’d come, as he had, to meet with the people he’s tapped to run the Vision Fund, his $100 billion bet on the future of, well, everything. After almost four decades of building SoftBank into a telecom conglomerate, Son, an inveterate dealmaker, launched this unprecedented venture two years ago to back startups that he believes are driving a new wave of digital upheaval. He has staked everything on its success–his company, his reputation, his fortune. We’d both arrived with the same basic question: Where is this massive vehicle heading? But because I wasn’t the one footing the 12-figure allowance, I understood that I’d be the one to wait.
In the hubbub of Son’s visit, my 9 a.m. meeting gets rescheduled multiple times until it’s set for 4:30 p.m. When I finally arrive at the Vision Fund’s offices, just off California’s Highway 101, I’m struck by how mundane they are. Son is known for big, showy statements. He reportedly paid $117 million for a home in Woodside in 2013, the highest price ever in the U.S. This glass and concrete building, on the other hand, could be found in any part of suburban America.
The room where I wait is spartan. There is an empty desk in one corner, and a conference table with a fake-wood veneer. I try to read the pale gray scribbles on a whiteboard, hoping they might shed light on what happens in this place, but the surface has been too well scrubbed. The interior glass walls of the conference room have been lined with a white, papery substance that turns anyone on the other side into apparitions.
Finally, Rajeev Misra, CEO of the entity overseeing the Vision Fund, rushes into the room, smiling broadly and apologizing profusely. Misra, who has flown in from London for these meetings, looks exhausted but jacked up, as if he’s gotten a shot of adrenaline. Son has this effect on people. It is an exceptionally busy day at the Vision Fund. Not only is the big boss in from Tokyo, but unbeknownst to me, the team is preparing to announce billions of dollars in new investments: a $1 billion round for Oyo, the Indian hospitality startup; $800 million split evenly between Compass and OpenDoor, two real estate disrupters; $100 million for Loggi, a Brazilian delivery startup. It also would lead a $3 billion round in Chinese startup ByteDance, which makes several popular news and entertainment apps, including TikTok. At the same time, Son and his partners are in the midst of launching a second $100 billion fund, with plans already underway to raise an additional $45 billion investment from Crown Prince Mohammed bin Salman of Saudi Arabia—the Vision Fund’s primary backer. Neither Misra nor I knew it then, but this relationship would soon get complicated.
“So what do you want to know?” Misra says, clapping his hands loudly. “You want the road map? I’ll start from 10,000 feet. . . .”
On the surface, the story of the Vision Fund is about money. How could it not be? The numbers are eye-popping. The Vision Fund’s minimum investment in startups is $100 million, and in just over two years since its October 2016 debut, it’s committed more than $70 billion. Son, 61 years old, will also back companies he likes via SoftBank itself or other means: He’s put some $20 billion–and counting–into Uber and WeWork through a combination of financial instruments. (Son’s machinations have always been highly complex and it’s not worth getting lost in the minutiae; regardless of the means, the deals are at his behest.) His big-money bets agitate the venture capitalists who have long inhabited the dry stretch of lowlands between San Francisco and San Jose, a place where any fund over $1 billion was head-turning as recently as three years ago. Turns out, nobody likes competing with a bottomless-pocketed behemoth. “Have you seen the movie Ghostbusters? It’s like the Stay Puft Marshmallow Man tramping around,” one VC tells me before I visit SoftBank. Then he asks me to ask Misra the question everyone in town wants to know: Who is Son investing in next?...MUCH MORE