Tag: news

Submitted by Nicholas Colas of DataTrek Research

Peter Thiel’s most famous one-liner may well be, “We wanted flying cars, instead we got 140 characters”. As a send-up of tech entrepreneurship’s focus on the mundane rather than the magnificent, it’s pretty good. And Twitter may be 280 characters now, but we still don’t have flying cars.

We thought of that line today when we came across an article in the MIT Technology Review titled “The way we train AI is fundamentally flawed” by Will Heaven, the journal’s senior editor for AI and Ph.D. in Computer Science. The piece reviews a recent paper by 40 Google researchers across 7 different teams. There’s links to both the MIT article and the Google paper below (the latter is heavy reading), but here is a brief summary:

• Artificial intelligence training is a 2-step process. You start by showing an algorithm a dataset. As it goes through that data, it “learns” to identify images, voices, or whatever you’re trying to teach it by subtly altering the weights of the criteria it is coded to evaluate. Once that’s done, you test it on data it hasn’t seen before. When you get a satisfactory outcome to that test, you’re done.

• The problem is that if you train 50 AI algos on a given data set and then see them all pass their tests, they still perform very differently in the real world. They might be great at identifying images in low light conditions, but not when presented with high contrast, for example. Another AI algo trained on the same data and validated by the same test may have the opposite problem. Or it may do both well…

• Put succinctly, the MIT journal article says, “the process used to build most machine-learning models today cannot tell which models will work in the real world and which ones won’t”.

• The problem is “underspecification”, and as the article notes “Google researchers ended up looking at a range of different AI applications, from image recognition to natural language processing (NLP) to disease prediction. They found that underspecification was to blame for poor performance in all of them.”

• There are ways around underspecification, ranging from more testing (essentially “up-specifying” the algo so it does the work correctly) to releasing multiple versions of the same algo and letting users pick which ones work best for their application.

Our take: while it is surprising that AI researchers have only recently figured out what’s inherently wrong with AI development (and the fact that it’s Google fessing up seems important), at least they are one step closer to a better testing/validation regime. We won’t get flying cars – or even just self-driving terrestrial ones – until this process improves.

Sources:

SMIT Tech Review Article: “The way we train AI is fundamentally flawed”

Google paper, “Underspecification Presents Challenges for Credibility in Modern Machine Learning”

 

While Joe Biden is busy filling up hs cabinet with distinguished members of Obama’s deep state ensuring years of warfare, at least one presidential coup in a Russia-neighboring nation and record prices for defense stocks, the only question that matters for traders is who head Biden’s Treasury secretary.

Here, a surprising reversal appears to have taken place because contrary to previous reports that Fed governor, and prominently political Clinton supporter, Lael Brainard was set to replace Steve Mnuchin, Charlie Gasparino reported that according to a Joe Biden adviser, Yellen has now leapfrogged both Brainard (and Roger Ferguson) to become the most likely candidate to head the Treasury: “Shes liked by banks, OK with progressives and easily confirmed.”

And in the worst news for Neel Kashkari whose ambitions to become the next Fed chair are hardly a secret, Gasparino notes that Lael “will be kept at the Fed where she can replace Powell at some pt.”

BREAKING from top Wall Street @JoeBiden adviser on how Janet Yellen leapfrogged Lael Brainard, Roger Ferguson to likely run Biden’s @USTreasury: “Shes liked by banks, OK with progressives and easily confirmed. Plus we keep Lael at the Fed where she can replace Powell at some pt.”

— Charles Gasparino (@CGasparino) November 23, 2020

And just minutes later, Bloomberg confirmed, reporting that “Lael Brainard has been told by allies of President-elect Joe Biden that she needs to stay at the central bank.”

Also confirming the bad news for Kashkari, Bloomberg notes that “Brainard is the only Democrat on a Fed board filled mostly by President Donald Trump’s appointments, and she may be a leading candidate for Fed chair when Jerome Powell’s term expires in 2022.”

In other words, some time in 2022 the five most important financial and political posts in the world – the US Treasury, The Fed, the ECB and the IMF – will be headed by women. The fifth? Why president Kamala Harris who will replace Joe Biden sometime in the next 6-12 months. One can only hope that there is no historic market crash and/r bubble burst in the coming years, because women will never hear the end of it.

Facebook has decided on a novel strategy to try and get back in Joe Biden’s good graces (and hopefully stave off a heavy-handed antitrust crackdown): brainwash convince its 2 billion users that COVID-19 vaccines are safe and effective, while also promoting content about the Paris Climate Accords, especially arguments about the US rejoining the agreement. 

Part of the company’s strategy, as we’ve noted before, is to elevate the status of Nick Clegg, a former deputy PM from the UK who already has a close relationship with Biden (who served as VP in the US for part of Clegg’s time in the highest echelons of British government).

But will this be enough to salve the fury of progressive Democrats who accuse Facebook of failing to safeguard American Democracy by allowing too many conservative voices to flourish on its platform. Progressives have accused Facebook of allowing hate speech and Russian propaganda to flourish, with little in the way of actual evidence (though every once in a while progressive journalists will find a ‘white supremacist’ group whose Facebook page hasn’t yet been taken down). In reality, Dems are angry that the most popular Facebook pages belong to Ben Shapiro and Dan Bongino, two conservative pundits with more reach than some of the biggest “mainstream” media companies (like the NYT).

The top-performing link posts by U.S. Facebook pages in the last 24 hours are from:

1. Dan Bongino
2. Donald J. Trump
3. Dan Bongino
4. Fox News
5. Franklin Graham
6. Fox News
7. Classic Hollywood | Los Angeles Times
8. Breitbart
9. Bernie Sanders
10. CNN

— Facebook’s Top 10 (@FacebooksTop10) November 19, 2020

According to the FT, Facebook’s most immediate goal is to try and secure a ‘hearing’ with Biden and his top policy team (which, to be sure, includes many Silicon Valley stalwarts who are sympathetic to Facebook’s corporate aims).

In its attempt to secure a hearing from the new administration, Facebook is planning a series of initiatives that align with Mr Biden’s top priorities in government, insiders say. The company will expand its efforts to combat misinformation about the coronavirus pandemic, and is considering publishing a banner advertisement at the top of users’ news feeds encouraging them to take a vaccine once it is approved.

Such a move threatens a backlash from the majority of Americans, however, who say they are not convinced that a vaccine will be safe and are not sure they will receive one.

The company is also working on how to promote action on climate change, including a range of new stickers, buttons and other functions to encourage users to share content about the Paris climate agreement, which Mr Biden has promised to re-join.

Mr Biden will now have to decide whether to lend his weight to various Congressional efforts to regulate social media, including whether to follow through on his threat to try to repeal Section 230. And his pick to head the FTC will decide whether to push for Facebook — which bought Instagram and WhatsApp in 2012 and 2014 respectively — to be broken up altogether.

Of course, as the FT pointed out, Facebook’s vaccine push could risk upsetting users who are skeptical of the new COVID vaccines and their safety. The company has already taken steps to try and suppress anyone questioning the ‘official’ narrative, however.

Clegg and Biden have worked closely together during the 5 years – between 2010 and 2015 – that they worked in parallel positions in their respective governments. The two men stayed in touch following their respective stints in government, and they even helped to create the “Transatlantic Commission on Election Integrity” and they participated in an hour-long podcast back in 2018.

One senior FB employee told the FT that the company knows “Sir Nick” won’t save Facebook from being broken up. “A lot of the Democrats simply hate Facebook right now. We know Nick Clegg is not going to save us from that, but at least he will help us get a hearing.” Ultimately, that will probably depend on how much influence Elizabeth Warren and other progressives like AOC will have during the Biden Administration.

Authored by Lance Roberts via RealInvestmentAdvice.com,

“The stock market is not the economy.” Such remains the “Siren’s Song” of investors as valuation expansion is the sole driver of the market’s performance. Given that corporations derive their revenue from economic activity, how do you invest when the economy is detached from the economy?

I explored this issue in my presentation at the MoneyShow Virtual Expo last week. In the presentation I cover:

• Why we are still in a “bull market.” 

• The stock market is not the economy.

• The linkage between the economy and the stock market

• Where to invest in 2021 

• The trading rules to follow.

The following articles I recently wrote provide more clarity on the issues I discuss in the following presentation.

With the Federal Reserve creating “moral hazard” in financial markets, it certainly seems as if stocks can never go down. The problem, of course, is that is exactly what sentiment was like prior to the last two major bear markets.

Currently, just about every measure of valuation is predicting low to negative returns over the next decade.

While such does not mean that every year will be negative, it suggests we will likely witness increased volatility and more frequent declines. As Michael Lebowitz, CFA recently noted:

“Regardless of the economic environment, taking significant risks, and accepting pitiful expected returns is a bad idea. However, there is one more factor we must consider. The Federal Reserve supplies a massive amount of liquidity, much of which is finding its way into the asset markets.

The Fed will likely continue as long as inflation is held at bay. The result may be that stock prices continue to rise, and valuations eclipse all prior norms. However, the music will stop someday, and the facts presented here will be apparent.”

2021 May Be A Challenge

The trend is your friend, currently. The Fed will continue to supply liquidity, which will help the market ignore the reality of valuations, technical deviations, and excessive bullishness for now.

However, as we saw in March, such does not preclude hair-raising volatility and large declines, but it does support prices on the margin regardless of the environment. The problem comes when the Fed backs off, whether by its design, inflation, or an inability to absorb larger levels of debt issuance from the Government. At that point, slower economic growth, massive debt overhead, and rich valuations will matter.

Investors would do well to remember the words of the then-chairman of the Securities and Exchange Commission Arthur Levitt in a 1998 speech entitled “The Numbers Game:”

“While the temptations are great, and the pressures strong, illusions in numbers are only that—ephemeral, and ultimately self-destructive.”

There are a tremendous number of things that can go wrong in the months ahead. Such is particularly the case of a surging stock market against weakening fundamentals.

While investors cling to the “hope” that the Fed has everything under control, there is more than a reasonable chance they don’t.

Regardless, there is a straightforward truth.

“The stock market is NOT the economy.But the economy is a reflection of the very thing that supports higher asset prices – corporate profits.”

Enjoy the presentation.

The MoneyShow: Investing In 2021

I hope you enjoyed it.

 

MoneyShow Presentation Deck

The PDF of the slide deck is provided below for your convenience.

90 minutes after the Treasury sold a record amount in 2Y paper, moments ago in the day’s twofer special, another $57BN in 5 year paper was sold to less than eager buyers, because while the morning’s 2Y sale was mostly solid, the 5Y auction left quite a bit to be desired, starting with the high yield, which at 0.397%, tailed the WI 0.390% by 0.7bps unlike the stop through in the earlier auction of 2% which stopped through comfortably.

On the other hand, and like the earlier 2Y sale, the 5Y auction was also record big and at $57BN it was $2BN more than October’s total, and well over 50% greater than the average auction size in the past decade.

Record auction size does not mean record demand, however, and the Bid to Cover was unchanged from October at just 2.38, and below the recent average of 2.47.

This was especially true when looking at the internals, as Indirects dropped from 61.9% last month to just 56.5%, the lowest since March, and with Directs flat month over month and taking down 14.3% Dealers were once again left holding the big with 29.2% of the auction, up from 24.1% in Oct and the highest since July.

Overall a rather disappointing auction, yet solid enough to absorb another record batch of US debt for sale; as usual the real question is just how big can each individual auction be – $75BN? $100BN? $1TN – before the market gets indigestion and the time to pay the piper finally arrives.

A convenient distraction?

After being called out for attending a birthday dinner for a friend/lobbyist at Thomas Keller’s French Laundry all the way out in Napa, California Gov. Gavin Newsom now has no choice but to remain in quarantine with his immediate family after one of his kids was exposed to a Highway Patrol Officer who later tested positive.

The officer is part of the detail that provides security for the governor and his family.

“We are grateful for all the officers that keep our family safe and for every frontline worker who continues to go to work during this pandemic,” Newsom tweeted. Three of the governor’s four children attend a private elementary school that resumed in-person instruction in November with increased safety protocols in place.

Late Friday evening, @JenSiebelNewsom and I learned that 3 of our children had been exposed to an officer from the California Highway Patrol who had tested positive for COVID-19.

— Gavin Newsom (@GavinNewsom) November 23, 2020

Jen and I had no direct interaction with the officer and wish them a speedy recovery.

Thankfully, the entire family tested negative today. However, consistent with local guidance, we will be quarantining for 14 days.

— Gavin Newsom (@GavinNewsom) November 23, 2020

We are grateful for all the officers that keep our family safe and for every frontline worker who continues to go to work during this pandemic.

— Gavin Newsom (@GavinNewsom) November 23, 2020

The name of the officer who exposed the Newsoms was not released, but one has to imagine that guy is probably feeling justifiably anxious about his long-term career prospects in the Highway Patrol right about now.

One of Newsom’s children was also recently exposed after another student at the private school (which hasn’t been named due to their young age and privacy concerns) tested positive.

But one of Newsom’s spokesmen said that “after being alerted by the school that a classmate tested positive for COVID-19, the potentially exposed Newsom child began a 14-day quarantine from the date of exposure in accordance with state public health guidance.”

While millions of Americans flout the CDC’s guidance about not traveling for the Thanksgiving holiday, the Newsom family will simply have to make do in quarantine from Sacramento. Does “French Laundry” deliver?