Chat with Yi

  • Building user profile data set for machine learning purposes can be a lucrative business
  • getting an MnA guy involved to manage relationships with acquirer is helpful to tweak the company features for eventual acquisition. Once an acquirer signals intent other competitors will follow along
  • enterprise business
    • Once software is complete is about solidifying business model and supply chain
    • High revenue but potentially low margin business
    • once u get into this it’s hard to crawl out
  • Finance
    • Benchmarking negative momentum across entire industry
    • company with the slowest negative momentum in a negative environment is the one with the most resilience

Key insights from mooncake festival at house of Jerry and Liza

Technology trends

  • Companies are increasing shifting their service from one-off on premise licensing deployment monetization to cloud based SaaS recurring subscription models
    • revenue hit in the short run
    • increased customer LTV in the long run
    • affected publicly traded companies will experience short term discounts to their shares
  • Artificial intelligence versus Augmented intelligence
    • companies are increasingly shifting away from automatic insight generation to systems that help decision makers simulate and model potential outcomes when specific policies are executed
    • demand is shifting from insight generation to data cleaning services
  • Corporate adoption of artificial intelligence
    • CEOs are increasingly considering how to leverage AI as a tool for their trade
    • primary use case is figuring out how to increase their sales volume
    • experiencing challenge on how to apply AI on in-house data to achieve monetization goals
  • Rise of deep vertical data networks
    • EverString – provides sales lead refresh for all client companies ends up becoming a large database for decision-making executives information, approximately 6 million records
    • StreetSine.sg – cleans up real estate data to help agents better price houses for sale by utilizing in-house agency ends up becoming a large database of high quality real estate data
  • Crypto-currency
    • Bit coin is still the main poster child
    • general population still skeptical about libra
    • main argument is still to remove central bank controls
    • main adoption hurdles
      • writing throughput volume
      • a stable store of wealth
      • starting to be using as a means to facilitate transaction in China
      • Inability to increase or decrease currency supply in times of need is going to be hard as a means to provide much needed stimulation during economic recessions and inflations

US/China trade war

  • sources of conflict
    • technology theft
    • forced technology transfer
    • unfair trade practices like subsidized state owned Chinese companies operating in the export markets
  •  economy
    • China is experiencing inflationary deleveraging
      • local farmers are not growing critical food sources
      • critical food supplies are imported
      • price of imported goods are denominated in US reserve currency
      • shifting of supply chain out of China to
        • Vietnam
        • India
        • Taiwan
      • capital flight
        • Li Ka Shing moved funds out from Hong Kong in 2013 to Europe
        • raising funds for US Venture capital from China was easy prior to Chinese and US government shut down
    • US is experiencing deflationary deleveraging
      • businesses are concerned about macro environment and are reducing fixed investments
      • manufacturing is slowing due to decreased demand both locally and overseas
      • consumer spending and confidence is still strong
  • Chinese domestic concerns
    • Potential US meddling in Chinese domestic affairs – Hong Kong’s demonstration and demands
      • Revoking of National Education
      • Revoking of extradition bill
      • Resignations of HK Chief executive
      • universal suffrage: freedom to elect their own leaders
    • destabilized situation presents a challenge for Xi JinPing’s party to retain control of power over former Jian Zemin’s faction
  • value system
    • US is a highly rule based system
    • China’s system of control is highly subjective to the individual in power.  Direct government intervention in the distribution of wealth is a major source of concern

US/Mexico and world issues

  • NAFTA agreement was too one side and failed to take into account large  imbalance between the two economies
  • US’s arrangement of allowing Mexican tax payers the right to claim dependents ultimately resulted into tax claims and refunds for entire extended families in Mexico. This has the effect of subsidizing Mexican’s at the expense of Americans living along the rust belts
  • Its observed income inequality is becoming prevalent across the entire world not just within US and China.

Related readings

Afternoon with Tomasso on the limitations of Artificial intelligence’s application

For us to be able to successfully apply artificial intelligence on any domain, the following needs to be true

  • The behavior the system to be modeled must not be stochastic
  • The state of the system must be decipherable by the data scientist
    • it should be possible to understand the state in which the system is at through interpretation of data gathered
  • The domain can be modeled
    • the parameters for modeling the domain must be well defined

Only when all three premise are true can we determine where the adjustment should be made when a model fails to predict an outcome

The financial markets is stochastic  in the short run.

The underlying parameters are constantly changing and thus hard to model due to the emergent nature of impacts caused by human activities. The data is qualitative and thus hard to convert into clean quantitative datasets.

While the price movements are obvious it is hard, it is hard to attribute impact to the various parameters.

As such, it requires human neural networks that consumed all these qualitative data to perform the prediction/decision making.

Insights from evening with Wine and Jam session with Adriene and Dennis, Birthday party with Konstantine

From Tommaso on Machine Learning – Economics

  • Study was done on Italy
  • Voting patterns can be leading indicators for credit spread
  • When a political party is stable, Eigen distance between votes of party members will cluster together, even for bills that are not critical for parties
  • When a political party becomes unstable, the Eigen distance between vote on non-critical bills by party members will increase
  • Alignment will increase before a wild swing to misalignment
    • periods of high alignment leads to very tight credit spread
    • tight credit spread indicates a very high price for bond
  • Misalignment will decrease before consolidation towards alignment
    • periods of low alignment leads to very wide credit spread
    • wide credit spread indicates a very low price for bond
  • proposed strategy:
    • when alignments increase, short bonds in anticipation for forthcoming misalignment
    • when misalignments increase, long bonds in anticipation for forthcoming alignment

From Tommaso on Machine Learning – Micro-biology

  • Started studying how presence specific bacteria affects health at an aggregate level
  • Studying ancestral tree of bacterias help estimate the distribution of bacteria in the gut of different individuals

On sales

  • Mormons are one of the best sales people due to their coming to age ritual.
  • They typically will get rejected many many times during their passing through rite

On human cyborgs

  • Neil Harbisson is an artist who is color blind, he implanted a device into his brain which allows him to see colors

On hardware and biotech with Andrew

  • To design printed circuit board install IDE which allows easy assembly, simulation and coding – DesignSpark
  • Firmware for micro-processors are written in C. Firmware controls where signals are past to when incoming signals are received
  • Micro-processors are installed on circuit board
  • Can be printed in China and shipped over in 5 days – PCBWay
  • BioCurious and another biotech hacker space up in Berkeley have managed to train yeast to product cocaine and THC

Related readings

Macro economic extension to loss aversion reversion to mean trading methodology – Government versus Government scenario

Trading Heuristics

Chain of events and decision making

The decision making processes from June 2019 after the federal reserve signal likelihood of cutting interest rate leading up to the 2019 August downward mean reversion of the SnP.

19th June 2019, Federal Reserve signals for first time likely decrease of interest rates

Federal Chairman expresses concerns about potential cross winds caused by US trade policies and its impact on their dual mandate.

10th July 2019, news paper reports SnP reaches all time high

SnP on the cusp of crossing 3000 threshold for the first time to an all time high. Market is euphoric. Trade issue between US/China yet resolved but discussions are underway.

Short positions SQQQ and SRTY were utilized as hedges against downward macro environment reversion risk when the SnP extended beyond 3000 to reach an all time high

1st August 2019, US announcement of 10% tariffs on US300 billion imports from China starting September 2019

on 1st August, 24 hours after actual interest rates cut, Trump signaled 10% tariffs on USD300 billion Chinese import. SnP dropped.

Exited SQQQ and SRTY for 10% capital gain after reaching 30SMA and 50SMA range. Net combined loss to portfolio was 0.5%.  Left remaining long positions open.

4th August 2019, Chinese response

On 4th Aug 2019, China’s exchange rate dropped for the first time below 7RMB/1USD.

5th Aug 2019 trading day

On 5th Aug 2019, China announced they will halt all imports of agricultural goods from US.

Portfolio continued declining an additional 2% on the trading day of 5th August 2019.

Closed all long positions with the exception of REITs

Decline overview

  • SnP
  • REITs
  • Value shares
  • Growth shares

6th Aug 2019 trading day

On the evening of 6th Aug 2019, China announced decision to control fluctuation of RMB exchange rates to USD

Bought into TQQQ and URTY at below 30SMA and 50SMA

7th Aug 2019 trading day

TQQQ and URTY automatically exited at the mid point between the two following highs and lows:

  • highest point  before Trump’s tariff announcement came into effect
  • lowest point after China’s halt on US agricultural imports and RMB/USD breaking 7 came into effect

Related readings

Donald Trump’s August 1st 2019 tweet on additional tariffs

Highlights

  • The effect of a negative shock is 3X worst that the effect of a disappointment
  • The effect of a negative shock is longer lasting than the effect of a disappointment
  • The market does retain memory of prior states
  • Seems like each negative political macro event has approximately negative 3% impact on the SnP

Series of events

Wednesday, 31st July 2019, 2pm, US Federal Reserve’s disappointment

  • Federal Reserve announced an interest rate cut of 0.25% from 2.5% to 2.25%
    • no hints of further cuts
    • before announcement SPY price 300.04
    • after announcement SPY price 296.98
    • net effect on SPY -1.02%

Thursday, 1st Aug 2019, 10.26am, US President’s negative shock

  • President Donald Trump announced additional 10% tariffs on remaining 300 billion imports from China on Twitter.
    • before announcement SPY price 300.45
    • after announcement SPY price 291.02
    • net effect on SPY -3.14%
    • SPY price still above the 7th June 2019 price of 288.97 when the effect of Fed’s hint to adjust interest rate cuts has been priced in.

Sunday, 4th Aug 2019, 6.20pm PST, China exchange rate sinks below 7CNY/1USD for the first time

Monday, 5th Aug 2019, 9.58am PST, China suspends purchases of US farm products

  • US Market takes a sharp dip on Monday
    • SPY price 281.90 at lowest point
    • net effect on SPY -3.13%

Monday, 5th Aug 2019, 5.27pm PST, China announces fix to prevent further RMB depreciations against the USD

  • US market rebounds
    • SPY price 293.55 at highest point
    • net effect on SPY 4.13%

13th Aug 2019 Trump announces delay of tariff

  • US market rebounds
    • SPY price 292.32 at highest point
    • net effect on SPY 1.91%

14th Aug 2019 UK and US 2 years / 10years yield curve inverts. Germany reports GDP shrinkage for 2019Q2

  • US Market takes a sharp dip
    • SPY price 284.20 at lowest point
    • net effect on SPY -2.77%

Related artifacts

Trump’s tweet on additional 10% tariffs at 1st Aug 2019, 10.26am PST
Chinese RMB crosses 7RMB/1USD for the first time on 4th Aug 2019, 640pm PST

Related readings

Federal Chairman Jerome Powell on 0.25% interest rate cuts

Overview

  • Outlook for the US economy is favorable but
    • core inflation is only at 1.6% instead of 2%
    • cutting interest rate by 0.25% from 2.5% to 2.25%
  • insurance against downside risk
    • global growth is slowing
    • trade policy tension is a new stimulus to the equation and it is a concern
  • key objectives
    • strong job economy
    • 2% inflation rate
  • adopt an iterative approach by observing how economy reacts to policy changes

Key areas of concern

global growth slow down

  • US core inflation rate is at 1.6% – excludes food and energy inflation which are cyclical
    • US GDP sustained
  • US manufacturing declined in 2019Q1 and 2019Q2
  • US business fixed investment slowed in 2019Q1 and fell in 2019Q2
    • companies uncertain about investment spending
    • not seeing additional demand for products
  • June US job growth slowed in 2019Q2
  • disinflation rates observed in other countries
    • manufacturing in rural China and the EU are slowing

highly leverage business sector within the US

  • Business borrowings are excessive
  • loans have moved off balance sheet of banks to market based vehicles

Positive signals of sustained US economy

  • rising household income drives confidence
  • no booming sectors observed hence no concerns for busts

Federal Reserves framework for monitoring risks

  • Excessive leverage in the Financial sector
  • Excessive asset valuations
  • Excessive debt loads in households and business
  • Funding risks that could result in sudden shortfall of liquidity

Structure of the US economy

  • US capital requirements within banks are at 2X of what is required to tide through tough times
  • Allocations
    • 70% consumer
    • 30% investments and manufacturing
      • not growing
      • remains healthy

Related references

Summary of readings and conversations for the week

Trends observed

  • Worsening income inequality
    • driven by increased globalization and automation with failure in re-education as the primary cause
    • Continued low worldwide interest rates as central banks the world over struggles to prop up inflation rate at 2%
  • Rise in protectionism around the world in response to income inequality
    • Slowing trade volumes around the world
  • Demand saturation at the upper income segments
    • Slowing demand for housing in South Bay
    • Too much money chasing after too little deals

Related sources

Insights from Josh

Product

  • Starts with search
  • once query and corresponding is good visualize using graph which users can easily zoom in and out

Key APIs

Key data pipeline technology

  • Apache Spark
  • Apache Kafka
  • Elastic Search
  • GPL visualization

Acquisition strategy

  • Enterprise sales
  • Hire users from customers to act as salesman to other users who are in their network

Key challenge

  • Business is stuck at USD30 million ceiling per year right now
  • Trying to build more granular apps to target verticals to generate more profits

Key highlights of Fed Chair Jerome Powell’s testification before the congress

Primary mandate

  • Stable prices at 2% inflation rate
  • Low unemployment rate

Highlights of the US economy

  • US unemployment is at 3.7% the lowest in 50 years
  • Longest period of economic expansion at 11 years
  • Philips curve is dead – Inflation rate and unemployment rate seems to be  decoupled and no longer correlated

Key concerns within the environment

  • US inflation rate has fell below 2%
  • slowing global growth
    • manufacturing
    • investments
    • trade
    • business fixed investments
  • international trade volume slow down
  • slowing US business investments
  • lots of central bank with low interest rates have little wiggle room if recession were to occur

Federal Reserve as an institution

  • US economy is 70% consumer driven
  • Responds to congress policies
  • Responds to fiscal policies
  • reopens market when economy grinds to a halt
  • resilient to president’s (executive branch) meddling
  • utilizes framework and the tools available to achieve symmetrical 2% inflation rate
  • Fiscal policy is more powerful than monetary policy
    • becomes critical during a severe downturn
  • 4 key pillars of monitor
    • Asset price
    • leverage in financial system
    • leverage away from banks
    • funding risks
  • Fed will negotiate with other countries and will reject terms if international terms cannot be expected to work within the US system – Insurance Capital Standards
  • Will look for more tools to pursue mandate since interest rate is already very low
  • Can handle counter cyclical policies
    • buying US treasuries to increase supply of money in circulation

On the labor market

  • Income inequality
    • 1% owns 40% of wealth in America
  • US has less social mobility than other more developed countries
    • since 40 years ago US education system has not be able to train people to capitalize on technology and globalization
  • Median and lower income has stagnated (those without a degree)
    • Only increased 3% wage increase despite low unemployment rates
    • does not make up 2% inflation rate and productivity gains
    • chief causes
      • technology: automation has severely increased individual productivity and thus throughput capacity while production demand has not yet caught up with this increased capacity
      • globalization: more and more qualified workforce is coming online around the world that can be employed
  • community in the fringes finally getting to join the workforce in recent years after 2008 recession
  • employers having problems finding qualified people to fill positions – 7 million open positions within the US
    • good people skills
      • service economy
      • manufacturing economy
    • opioid crisis

Uneven development

  • US 3.7% unemployment rates
  • Michigan
    • layoffs due to trade war
    • 2018 April – 4.2% unemployment
    • 2019 April – 4.6% unemployment
    • cannot raise bonds at competitive rates
    • infrastructure on the rocks
  • Wisconsin – 2.8% unemployment rates
  • Economic development is increasing moving to the coast
    • young people are moving to the coast and to cities
    • able people are doing the same
  • Policies need to solve problem by increasing productivity
    • technology savviness
    • basic research skills and aptitude

On minimum wage

  • concerns over job loss when USD15 minimum wage is imposed
  • some will lose their jobs
  • others will make more money

Quantitative easing

  • expected to happen again this year
  • has caused substantial buildup of federal reserves
  • 22 trillionUSD Federal debt in total
  • corporate tax rate cuts leads to another expected 1trillion USD deficit this year
  • interest on government debt expected to become largest category of federal government expense by 2026 – government has less money to spend on anything else expect paying debts
  • Higher debt should have lead to higher interest rates, due to the special case of US being a reserve currency, government has been able to continue borrowing at low interest rates
    • Japan has higher debt to GDP ratio and low interest rates
  • Debt will get past on to next generation
  • If does not occur will undermine USD as the world’s reserve currency

World’s reserve currency

  • A very stable equilibrium for a long time
  • Can potentially have multiple currencies
  • On going back to the gold standard
    • will undermine the Dual mandate
    • Federal reserve will be forced to managed the price of gold instead – which sometimes fluctuate wildly
  • Currently USD was the British Pound a while back
  • Conditions for a sustained reserve currency
    • being the largest economy
    • best institution
      • democracy
      • rule of law
      • open to commerce with international trading nations
    • fiscal sustainability

Banking sector concerns

  • Going off LIBOR rate at end of 2021
    • Banks will no longer be required to offer a LIBOR rate at the end of day
    • will present a coordination problem especially for assets that do not have a predefined rate – mortgages
  • potential reduction of banks stress buffer
  • banks prefer to hold reserves versus treasury
  • bank CEOs areas of worries
    • leveraged lending
    • shadow banking
      • CLO/Hedge funds/ Mutual funds – area Global Financial Stability board is actively looking into
  • works closely with the Federal reserves

Speed up payment systems

  • use case: allowing cheques to clear faster so that mum can cash in salary to pay for food at home
  •  participants
    • regional banks
    • big banks
    • technologists
  • Federal Reserve will enter the market directly to be the settler
  • inter-operability with legacy system is a concern

Wire Fraud

  • Currently wire to an account
  • proposes to wire to an account with a name match
    • UK based system
    • conflicts with some state laws
  • organized crime primarily carried out within the real estate sector

Facebook LIBRA

  • facing negative headwinds
  • seen as aiding money laundering
  • privacy and data protection concerns
  • huge impact due to 2 billion users on platform
  • will be a marathon instead of a sprint to implement and roll out
  • Facebook conferring with governments around the world
  • will become the world’s largest payment system