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

Book summary AI super-powers, China, silicon valley and the new world order by Kai Fu Lee

The difference waves of AI

  • Internet AI – Facebook, Netflix, Google search
  • Business AI – Palantir
  • Perception AI – Tesla cars
  • Autonomous AI – Tesla self driving, Google self driving

Key locations

  • Silicon Valley
  • Zhong Guan Cun – Beijing

State of the Union

  • We are in the stage of implementation/application as opposed to RnD
    • having access to more data is more important than have expertise to do more RnD
    • having solid AI engineers is more important than AI researchers
  • We are still far from general AI
  • Key ingredients
    • data
    • computing
    • maybe work of strong AI algorithms engineers

Key differences between eco-systems

  • Silicon Valley businesses are mission and core values driven while Chinese businesses are pragmatically focused on profitability.
  • Silicon Valley businesses stay in bits and binaries offloading the brick and mortar to external vendors vendors while Chinese businesses extend their business model into the brick and mortar (online to offline)
  • Silicon valley prefers one size fit all strategy, Chinese businesses utilized localized solutions often investing/acquiring in local startups
  • Americans treat search engines like Yellow Pages (come and leave fast) while Chinese treat search engines like shopping mall (come to linger around long)
  • Silicon Valley is adversed to copying preferring to be unique Chinese business copy the heck out of each other

Chinese Advantage

  • Abundant data – quality and quantity aided by their online to offline initiatives
  • hungry entrepreneurs
  • AI scientist
  • AI friendly policy environment – strong emphasis by Chinese government
  • Hardware manufacturing know how – Shen Zhen
    • unparalleled supply chain flexibility – XiaoMi

Silicon Valley Advantage

  • Microchip manufacturing know-how

Trends within the Chinese eco-system

  • Darwinian eco-system has lead to extreme levels of competition
  • Chinese companies have already moved past the stage of clone Silicon Valley business models
  • Businesses innovate to build a defensive moat around themselves. Local businesses have advantage, with no timezone differences to deal with, decision making is relatively faster.
  • Online to offline
    • an essential ingredient to building strategic moats
    • caused the decline of cash use
  • Chinese government information systems will be able to leap frog US government information systems

Policy approaches

  • Google – impeccable safety
  • Tesla / China – trial by fire
  • key to winning the Autonomous AI race
    • is the bottleneck technology (Silicon Valley) or policy (China)?

Key concerns

  • having cheap labor is no longer going to be a source of advantage in a world heavily powered by automaton.  Developing countries hoping to employ this well tested strategy to progress will not be able to do so anymore
  • Estimated 60% potential job loss worldwide barring policy interventions
  • Job loss probability assessment
    • physical labor
      • environment – unstructured versus structure
      • tasks nature – level of dexterity versus high dexterity
    • cognitive labor
      • social – high versus low
      • cognitive – optimization based versus creativity/strategy based
  • AI replacement approach
    • single tasks approach
    • ground up rethink re-imagination
  • A population of irrelevant (no longer employable) as opposed to unemployed

Tackling Key concerns

  • Silicon valley – reduce, retrain and redistribute
  • Kai Fu Lee – stipends for care, service, education

New promise

  • Humans freed up from repetitive tasks can now focus on becoming more human oriented

Related readings

  • Disruptor, Zhou
  • www.Arvix.org – an online repository of scientific papers
  • Folding Beijing – Hao JingFang

Reflections on the subject of economics

Man as an automaton

The average man eats, sleeps, shits and reproduce.

When presented with environment stimulus that signals more of the above, his brain emits dopamine which elicits are warm fuzzy sensation in his body which he interprets as pleasant.

When presented with environment stimulus that signals less of the above, his brain emits adrenaline which elicits muscular tension and heat in various parts of his body which he interprets as unpleasant.

Physics as the upper bound constrain for economic activities

Economic activity is what man as a collective organism engages in as it goes about fulfilling its above stated needs.

A quantum leap in economic activity is only possible when there is significant break through in the field of physics.

A large increase in numeric valuation of such economic activities without corresponding increase in actual physical throughput volume will result in either an inflation or a subsequent correction.

Characterization of economic activities

Aerobic economic activity is when the environment remains at equilibrium during energy extraction for the above stated needs.

Anaerobic economic activity is when the environment equilibrium is disturbed during energy extraction for the above stated needs.

Framing as a high level principle

He who controls the frame determines what goes within it.

The jug shapes the water.

The player controlling the outer edges of the Othello board generally wins the game

The country which controls the currency for all international commerce control the direction and level of cross border commercial activities.

US controls the global USD supply which majority of foreign economic activities and debts are denominated in. US controls the future economic outputs creditors will receive in the future.

Major creditors for US debts like China and Russia are moving towards Gold as the denominator.

Effects of Trump administration and Federal Reserve fiscal policy on the S&P index

2018 Oct / Dec

During the period of Dec 2019, the SPY index ranged between

  • 3rd Oct 2019 – USD 291.72
  • 24th Dec 2019 – USD 234.34

The steep decline in share price can be attributed to the ongoing trade war wage by the Trump administration and the expected Federal Reserve rate hike. The decline attributions are as follows:

  • Trump administration
    • USD 291.72 – USD265.37
    • 3rd Oct 2019 – 13th Dec 2019
    • decline of 9.03% off of USD291.72
  • Federal reserve rate hike
    • USD265.37 – USD234.34
    • 13th Dec 2019 – 24th Dec 2019
    • decline of 10.63% off of USD291.72

2019 May / June

During the period of May and June 2019, the SPY index ranged between

  • 3rd May 2019 – USD 294.03
  • 3rd June 2019 – USD 274.57

The steep decline in share price can be attributed to the two front trade war wage by the Trump administration which caused a 6.61% price decline

Of the recovery that occurred after 3rd June 2019, the following parties could be attributed

  • Federal reserve
    • USD274.57 – USD 287.65
    • June 3  2019 – June 7 2019
    • 4.76% recovery off of USD274.57
  • Trump administration
    • USD 287.65 – USD 292.32
    • June 10th 2019 – June 18th 2019
    • 1.70% recovery off of USD274.57

Conclusion

While both the Government administration and the Federal reserve have observed impact on the SnP index, it is observed the Federal reserve has a slightly higher level of impact.

  • Oct/Dec 2019: 10.63% versus 9.0%
  • May/June 2019: 4.76% versus 1.70%

 

Guo Jia’s Ten Advantage Framework

A framework Guo Jia used to assess Cao Cao’s strength versus Yuan Shao’s strength during the period of the three kingdom. This is an alternative measure to the modern day GDP measure which has been documented to be in use by the Chinese CCP government.

Advice to Cao Cao

  • Yuan Shao is overmuch devoted to ceremony and deportment; while you are sympathetic and natural; this is an excellence in conduct.
  • He is antagonistic and drives; you are conciliatory and lead; so you have the advantage of popular approval.
  • For many years the government has been lax, and he makes it more so; you strive vigorously after efficiency; this is the excellence of able administration.
  • He is outwardly liberal but grudging at heart, and too given to nepotism; you appear exacting, but you understand and use people after their ability; this is the advantage of correct appreciation.
  • He is a visionary but lacking in decision; you are a man of prompt decision and direct action; this is an advantage in policy.
  • He loves to gather about him people of renown; you treat people as you find them regardless of their reputation; this is where you excel in moral virtue.
  • He is compassionate to those at hand, but careless about those out of sight; your care is all-embracing; this is where you excel in humanity.
  • He lends a ready ear to calumny and is misled; you may be flooded with evil counsel, but you preserve independence; this is where you excel in perspicacity.
  • His sense of right and wrong is confused; your appreciation is accurate and clear; this is where you excel in administrative capacity.
  • He loves the make-believe force, but is ignorant of military essentials; you would overcome with far inferior numbers as you possess military genius; this is where you excel in war.

Related readings

  • The hundred year marathon, Michael Pillsbury
  • Book of Wei

June 4th 2019 US/China trade war loss aversion reversion to mean pattern

Overview

The central banks announced they stepped in to prop up the market if situation deteriorates with the ongoing trade war.

The world’s leading indicator

The Russell index observed to have started stabilization as recent as the 31st of May 2019

The trend followers

Down trend persisted for the Nasdaq well till 4th June 2019

Down trend persisted for the S&P 500 well till 4th June 2019

The leading indicator for Asia

The Nikkei Index closely mirrored the Russell 2000 index

Other Asian indexes

The charts for the Asian markets closely mirror the SnP charts with Singapore being most responsive amongst

Prediction on US/China Trade war to be verified in 2021

Main points of contention

  • Marxist ideological foundation versus a Judeo-Christian philosophical foundation
    • “In god we trust” versus a centrally controlled and designed market model
    • China’s inability to open up markets internationally due to challenges in finding a sustainable way to separate market from government
    • viewing the Party as above the market leading to difference in way IP ownership is viewed
  • The Chinese dream versus the American dream
    • China’s dumping strategy which lead to the severe imbalance of trade and thus steady US job losses over the past years
    • China’s strategy of acquiring US technology via forceful knowledge transfer due to its point of view on markets which resulted in the blacklisting of Huawei
    • China’s intention to establish leadership over two thirds of the world’s population thus challenging US dominance leading to the election of a hawkish US president

Assessment of situation

  • The issue is deeply structural and resolution will be unlikely during Trump’s current term of service
  • Companies within impacted industries will continue experiencing negative headwinds well beyond 2019
  • US companies will gradually shift production to the US and other parts of the world as President Reagan’s hypothesis on China’s successful transition to a market economy gets invalidated
  • World splits into two distinct economic blocs
  • Chinese economy will face continued pressure given the following concerns
    • aging population
    • lack of room for further domestic growth
    • none granting of WTO market status
  • US untangles its free market economy from the Chinese centrally controlled market economy as the latter slips into recession

Related references

Key takeaway from Great Again by Donald Trump

Personal mous operandi

  • When you draw a line in the sand if someone else crosses the line enforce repercussions
  • When laws are not enforced them, they don’t exist
  • Plays cards close to vest to keep opponents second guessing
  • Values loyalty highly
  • find the best people to get the job done and then watch over them
  • The side that needs the deal most should walk away with the least

On foreign military

  • Long term rivals: China and Russia
  • Build up strength of US military as a form of deterrence to avoid necessity for deployment
  • Only intervene when US economic interest is served as opposed to a purely ideology driven approach
  • Countries that benefitted from US military aid should pay for service
    • South Korea
    • Germany
    • Saudi Arabi
    • Japan
    • Britain
  • On the middle east
    • Iran should not be trusted
      • their nuclear research program
      • their motivation to take over the entire Middle East
      • their motivation to wipe out Israel
    • See Israel as an ally. Sees the need to ensure balance of power amongst players within the middle east
    • The removal of Iraq has a net destabilizing effect on the region
  • Keep oil prices in check
    • to keep ISIS oil revenue from Iraq and Syria in check
    • To insulate the US economy from OPEC’s price setting ability
    • To become the largest oil producer in the world so as to overtake Saudi Arabia and Russia so as to keep their economic influence in check

On foreign trade

  • Believe in escalating use of sanctions to force other countries to table for negotiations
  • US Trade deficit is concerning
  • On China
    • Have deep respect for the Chinese who are great businessmen
    • largest holder of American debt
    • Chinese stock markets have too much influence on US stock markets
      • 2015 Chinese stock markets collapse caused US Dow Jones to plummet 1,000 points
    • Sees China as more dependent on US than US is on China. To utilize this as a leverage
  • Discourage other countries from devaluing their currencies against the USD
    • Japan
    • China
    • Mexico
  • Rectify faulty trade arrangements
    • China
    • Mexico
    • Russia
    • Iran
    • Saudi Arabia
  • Willing to utilize economic strength (American consumer) to reward countries that cooperate and punish those that don’t

On the economy

  • Believes in a progressive individual taxation system to provide more liquidity for the lower to middle class
  • Encourage companies to bring jobs and manufacturing back to the US
  • Streamline and lower corporate taxation to encourage companies to bring foreign reserves back to the US
  • Reduce corporate taxation to encourage growth of local companies and manufacturing
  • To reduce over-regulations to increase growth rate of corporate activities
  • Build up of military encourages GDP growth
  • Build up of infrastructure encourages GDP growth and facilitates commerce
  • On Oil
    • To build up the US Shale oil industry
    • Create more jobs domestically

On healthcare

  • break up virtual state monopolies by insurance companies
  • allow competition to make insurance companies compete for their customers

On education

  • decentralize control of the educational system to the districts to enforce standards
  • mistrust teacher unions’ ability to make sure only the best teachers get the job

On domestic operators

  • On reporters
    • mistrust political reporters as they generally misrepresent and bias towards sensationalization
    • trust financial reporters because dollars and cents are at stake
    • build relationship with them to generate free publicity for his ideas
  • Views interest of politicians as mis-aligned to interest of people

On immigration

  • Wants to retain the best foreign talents within the country and make it easy for them to contribute
  • To stem out illegal immigration so as to keep out unqualified immigrants
  • To remove the USD1billion/yr cost of keeping foreign criminals in US prison
  • Stop the tide of refugee immigrants to reduce the cost and repercussions of supporting them

On guns rights

  • 2nd Amendment, gun rights needs to stay intact so that citizens can keep the state in check and have a way of protecting their family
  • People with mental health should not be allowed to own guns
  • Over regulation is ineffective, criminals do not get their guns via normal routes

On religion

  • Believes in the freedom of religion
  • Believes Christian ideals is the philosophical foundation of the US

Post 2019 US/China Trade War companies for consideration

The following is a list of microchip related companies to consider once the dust settles

  • AVGO – Broadcom
  • NVDA – Nvidia
  • QCOM – Qualcomm
  • INTC – Intel
  • MU – Micron
  • AMD – Advanced micro devises
  • XLNX – Xilinx
  • MCHP – Microchip Technology Inc

The following is a list of Consumer technology companies to consider once the dust settles

  • WB – Weibo
  • BIDU – Baidu
  • TCHEY – Tencent
  • BABA – Alibaba