Mad Hedge Technology Letter
October 4, 2019
Fiat Lux
Featured Trade:
(WHY YOU ARE ABOUT TO LOSE YOUR JOB)
(SPECIAL AUTOMATION ISSUE)
The hammer has been brought down on the financial industry.
Robots are here and here to stay - automation is taking place at a breakneck speed displacing worker from all industries.
In a recent report by Wells Fargo, the U.S. financial industry will supposedly fire 200,000 workers in the next decade because of the advancements of automating processes.
Yes, humans are going obsolete and banking will effectively become algorithms working for a handful of executives and engineers controlling the algorithms.
The catalyst in this equation is the direct capital of $150 billion annually that banks spend on technological development in-house which is higher than any other industry.
Private businesses aren’t charities and banks are doing this all in the name of lower cost, shedding employee wage packets, and boosting efficiency rates.
We forget to realize that employee compensation absorbs up to 50% of bank’s expenses.
The 200,000 job trimmings would result in 10% of the U.S. bank jobs axed for the hyped-up “golden age of banking” that should deliver extraordinary savings and extra services to the customer.
I would argue that cost savings due to technological enhancements have already had an outsized surge in available services to the client as mobile and online banking has increased functionality allowing U.S. customers to maintain tight internet control over their bank account from anywhere that has an internet connection.
The most gutted part of banking jobs will be in the call centers because they will be substituted by chatbots.
A few years ago, chatbots were awful, even spewing out arbitrary profanity, but they have slowly crawled up in performance metrics to the point where some customers do not even know they are communicating with an artificial engineered algorithm.
The wholesale adoption of automating the back-office staff isn’t the end of it, the front office will experience a 30% drop in numbers sullying the predated ideology that front office staff is irreplaceable heavy hitters.
As it is, front-office staff is in the midst of getting purged with 2018 representing a fifth year of decline.
Front-office traders are being replaced by software engineers as banks follow the wider trend of every company migrating into a tech company.
Efficiencies do not stop there; the adoption of artificial intelligence will lower mortgage processing costs by 20% and the accumulation of hordes of data will advance the marketing effort into a smart, hybrid cloud-based and hyper-targeted strategy.
You would think that less workers mean higher pay for the employees - you thought wrong.
Historically, a strong labor market and low unemployment boosts wage growth, but national income going to workers has dipped from about 63% in 2000 to 56% in 2018.
Causes stem from the deceleration in union membership and outsourcing has snatched away bargaining power amongst workers on top of the mass automation being implemented.
I was recently in Budapest, Hungary and on a main thoroughfare, a J.P. Morgan and Blackrock office stood a stone’s throw away from each other employing an army of local English proficient Hungarians for 30% of the cost of American bankers.
Banks simply possess wider optionality to outsource to an emerging nation or to automate hard-to-fill positions now.
In this game of cat and mouse, companies can easily rebuff workers' attempts to ask for salary raises and if they threaten to walk off the job, a robot can just pick up the slack.
The last two human bank hiring waves are a distant memory.
The most recent spike came in the 7 years after the dot com crash until the sub-prime crisis of 2008 adding around half a million jobs on top of the 1.5 million that existed then.
The longest and most dramatic rise in human bankers was from 1935 to 1985, a 50-year boom that delivered over 1.2 million bankers to the U.S. workforce.
Recomposing banks through automation is crucial to surviving as fintech companies are chomping at the bit and even tech companies like Amazon and Apple have started tinkering with new financial products.
“I don't want to have a major lawsuit against our own government... But look, at the end of the day, if someone's going to try to threaten something that existential, you go to the mat and you fight.” – Said Co-Founder and CEO of Facebook Mark Zuckerberg
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to the six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
October 3, 2019
Fiat Lux
Featured Trade:
(GOOGLE’S MAJOR BREAKTHROUGH IN QUANTUM COMPUTING),
(GOOGL), (IBM)
(AI AND THE NEW HEALTHCARE),
(XLV), (BMY), (AMGN)
The first major industry to be fundamentally disrupted by artificial intelligence will be healthcare, America’s last 19th-century industry.
Major diseases are being cured at such a dramatic pace that if you can survive the next decade, chances are you can live forever.
DNA is the software of life and spending $3 billion to decode it by 2003 was the best investment the U.S. government ever made.
These are the opinions expressed by longtime friend Dr. Ray Kurzweil. These ideas may seem like the ravings of a mad lunatic. However, Kurzweil long ago became used to such criticisms. The funny thing is, his very long-term predictions have a nasty habit of coming true.
For Kurzweil is the head of engineering at Google (GOOG), the co-founder of the Singularity University, and an early AI evangelist.
The outer shell of the human brain, the neocortex, is where we do all of our higher thinking, problem-solving and imagining. It first appeared in our pre-mammalian ancestors some 200 million years ago.
The neocortex enjoyed a sudden growth spurt 2 million years ago for reasons no one understands. Maybe that’s when we came out of the trees. This gave homo sapiens a huge advantage over all other life forms on earth.
The next step in our intellectual evolution will be carried out by AI. By connecting our neocortex to the Internet, we will improve our intelligence by a billion-fold. Imagine everyone you come in contact with is a billion times smarter than they are today.
Ironically, such advances in human bionic connections have been greatly advanced by our recent wars in the Middle East, which created large numbers of quadriplegic veterans desperate for contact with the outside world.
Defense research dollars have poured in to meet this need. Last year, I saw a classified video of a disabled soldier operating a computer just by thinking about keystrokes.
Kurzweil calls such a connection the Singularity, where humans and computers become one. He envisions this taking place on a large scale by the mid-2040s.
We already know how this will affect civilization because the billion-fold improvement in intelligence is already available in our hand in the form of a smartphone. All that is missing is the human/machine connection.
Over the past 1,000 years, human life expectancy has improved fourfold, from 19 to 80. As a result, a raft of new diseases has appeared only in the past century that show up late in life, such as cancer, diabetes, arthritis, Parkinson’s disease, and dementia.
The problem with this is that a millennium is but a nanosecond in the course of human evolution. Human T-cells have not had the time to evolve to fend off an attack from a cancer cell, which is why the disease is ravaging the human race today. Cancer rates are up exponentially from the 19th century.
Fortunately, there is a way to speed up the evolutionary process. Microscopic nanobots the size of red blood cells can be designed to go after specific cancers, and then injected in swarms in your bloodstream to attack them.
Such technologies require precise manufacturing at the atomic level and will be available in the early 2030s. I have seen pictures of such nanobots myself under an electron microscope in the scientific literature.
Alternatively, with some diseases, such as diabetes, all we need to do is to reprogram our software (DNA) to produce more insulin. This can be done with monoclonal antibodies, whereby a length of bad DNA is excised and a good one installed.
By the end of 2017, the Food and Drug Administration had approved nearly 100 such molecules to deal with a whole range of genetic diseases. Click here for the list.
Such advances will soon lead to what Kurzweil calls “Longevity Escape Velocity,” where advances in medical research are taking place faster than the natural aging process. Then we will only have to deal with senescence cells, which are internally programmed to turn themselves off at a certain age. Presumably, monoclonal antibodies will be able to turn these back on as well.
Of course, the investment implications of all of this will be prodigious. Perhaps, that’s why the shares of the entire healthcare sector (XLV) and big pharma (XPH) have been on an absolute tear for the past two years.
I believe that technology and healthcare stocks will overwhelmingly be the major outperformers over the next two decades. We are seeing the profits from these revolutionary advances sill into companies such as Pfizer (PFE), Bristol Myers Squibb (BMY), and Merck (MRK).
However, all the healthcare advances in the world are not going to help you if you keep eating cheeseburger for lunch every day. One study I always like to cite took place during WWII when the global food supply shrank dramatically, and everyone was put on a strict mandatory diet. The incidence of every major disease fell by 30%.
At the end of the day, plenty of sleep, healthy eating, and exercise will always remain the greatest life extenders. Kurzweil himself has been an ardent vegetarian for most of his life.
As for me, I rather have a good steak once a month and settle for living only to 120.
Keep renewing those newsletter subscriptions!
The Next Cancer Cure?
Mad Hedge Biotech & Health Care Letter
October 3, 2019
Fiat Lux
Featured Trade:
(GETTING ON BOARD THE GENE-EDITING REVOLUTION),
(CRSP), (VRTX)