Artificial Intelligence is in our present and future

 

Monday, April 10, 2023

Hello everyone,

Easter has been and gone for another year and another week of the markets is upon us. What will it be this week – bullish, bearish, sideways, good news is bad news, bad news is good news or news is just news??

Maybe we just need to turn to our A.I device to find out. Is that the future?

 

So, what is A.I.?

In its broadest sense, A.I. is the capability of machines to simulate human intelligence – to think and act the way that humans do. But we all know that human intelligence incorporates much more than just thinking and acting. Learning is a big part of it. Therefore, for any artificial intelligence to be considered “true” AI, it also needs to be able to learn. After that, it needs to apply what it has learned (by generalizing the knowledge) to solve new problems. After all, humans learn from experience to make better decisions.

 

 

Types of AI

Artificial Intelligence is usually grouped into the following two broad categories:

 

AI Applications or “Narrow” AI

AI Applications are capable of simulating human intelligence in a limited capacity. They can learn or be taught how to perform several specific tasks as efficiently as possible. In fact, it excels when it’s performing a single task, despite being heavily constrained.

AI applications are what we use every day. One of the biggest examples is personal data assistants like Siri and Alexa. These systems are capable of speech recognition and processing of natural language to determine what task you need them to perform.

Artificial General Intelligence (AGI) or “Full” AI

AGI is the type of AI that computer scientists dream of creating. It can simulate human intelligence in the truest sense with the ability to adapt to a multitude of scenarios and solve almost any problems that it encounters. This AI can drive a car, go shopping, balance an accounting book or even fly an airplane.

Currently, this type of AI is rooted in fiction. A good example of AGI would be Data from Star Trek, HAL from 2001: A Space Odyssey and JARVIS from Iron Man. AI analysts believe we are decades away from achieving this level of AI.

If we manage to create AGI, it is predicted that this will give rise to “superintelligence”. This is the type of AI that will surpass human intelligence on every imaginable level, including on the creative and emotional level. One of the downsides of superintelligence is that it will eventually start believing it is better than humans and may try to dominate us. We’ll leave that to future generations to sort out.

 

 

Why Artificial Intelligence is Important

AI has a lot of benefits, and these extend to virtually every industry.

A few are listed here:

 

Making Existing Products More Intelligent

AI is not a standalone product; it is integrated into existing products to make them more intelligent. One area where this is taking off today is the internet of Things (IoT). This is a network of interconnected smart devices that constantly communicate to anticipate human needs with little human intervention.

For example, when driving home, your phone will communicate to your garage that it’s in range so that it opens when you arrive. At the same time, the phone will set the thermostat to a comfortable temperature depending on the weather report it “checked” on the internet. Also, once the phone senses you’re inside your home, it’ll turn on your favourite relaxation music or the TV so you can watch the news.

As AI improves IoT will become better at anticipating your needs to the point human intervention will be completely unnecessary.

 

 

Automating Repetitive Tasks

Humans can only perform a task for so long before it becomes boring due to repetition. Boredom doesn’t register in machines. They can deal with the mundane, while humans focus on more high-level tasks that machines can’t do, yet.

So, get your AI to check documents for errors, bill multiple clients for completed projects, send customer onboarding emails, while you plan your next vacation.

 

Speeding Up Decision Making

Humans can only process so much information at a given time. Stress and tiredness are among the many factors that play a role in our ability to make decisions on time. AI is free from all this reduce and only focuses on what it is programmed to do.

Reduce Human Error

What makes us human affects our decision-making processes and causes us to make mistakes. A well programmed machine will not make mistakes.
For instance, the use of predictive AI has helped reduce human error in forecasting the weather. Businesses and brands have used the same AI to help them identify customers who are most likely to buy them.

 

Always Available

It’s obvious, isn’t it? Machines don’t need rest. Whether it is lunchtime or 2AM Alexa will always be available to process your queries. It’s also why businesses use chatbots to help customers after business hours.

 

 

OK, so, this may sound great, but how do we profit from all these advances in technology?

There is one tech fund capitalizing on the artificial intelligence boom – and beating 90% of its peers this year.

Adam Benjamin, manager of the $9.5 billion Fidelity Select Technology Fund (FSPTX) believes that A.I. is probably the largest technology theme, driver, and disrupter in the next 10+ years.

 

 

The mutual fund is up 22% in 2023, outperforming the Nasdaq Composite, which has risen 15%. It also has a solid long-term track record, racking up a 15.7% annualized return over the past 15 years that puts it in the 10th percentile, according to Morningstar.

Companies that rushed to embrace digital transformation during the pandemic continue to seek ways to improve efficiency through large language models like ChatGPT enabled by A.I., Benjamin said. He goes on to say that the biggest facilitator in the industry is no doubt, Nvidia.

Benjamin says that Nvidia is the single largest beneficiary by a wide stretch in terms of A.I. The chip stock is the Fidelity fund’s third largest holding with a more than 8% weighting.

Nvidia shares have rocketed 84% this year, boosted by their biggest quarterly gain since 2001. Benjamin says Investors grew bullish on Nvidia’s A.I. vision, while also viewing the inventor of the graphics processing unit as one of the chip manufacturers best positioned to endure an economic slowdown that’s already hurting personal computer and wider semiconductor sales.

Other semiconductor names among Fidelity Select Tech’s top holdings include Marvell Technology, NXP Semiconductors, ON Semiconductor, and GlobalFoundries.

 

The fund is rated four stars by Morningstar.

A.I. is all around us and improving all the time. Use it wisely.

Have a wonderful week. Don’t forget to do something that doesn’t involve A.I. 

Cheers,

Jacque

 

 

 

The housing crisis in your future brought to you by climate change.

 

April 7, 2023

Hello everyone,

Most of us know about the changing climate. But few of us realize the implications of these changes on housing over the next 30 years and beyond.

We know about interest rates and the cost of housing, but what about the relationship between climate and the cost of housing.

 

 

It’s another crisis, which is going to spread its tentacles worldwide. No country will escape.

Dave Burt, CEO of investment research firm DeltaTerra Capital believes an overlooked and unpriced climate risk could see a repeat of a financial crisis in housing, albeit on a smaller scale in relation to the 2008 crisis. But still, it’s a damaging real threat to exposed communities.

Dave Burt was one of the few skeptics who recognized the housing market was on the brink of collapse in 2007. He helped two of the protagonist of Michael Lewis’ bestselling book “The Big Short” bet against the mortgage market in the lead-up to the 2008 global financial crisis. As it turned out, they were right and were estimated to have made millions.

Now here in 2023, Burt believes an overlooked climate risk could see history repeating itself.
Burt argues that DeltaTerra Capital’s research suggests that 20% of U.S. homes have “meaningful exposure” to a mispricing issue because of flood risk. If realized, he warned the fallout could resemble the extraordinary correction seen during the global financial crisis.

Even though he says that it could be a quarter the size and magnitude of the GFC, it still would be very damaging to exposed communities. Burt argues that there are cracks starting to appear in terms of the cost of insurance. Think about Hurricane Ian in Florida, for instance. The recovery here was an issue, particularly because this storm surge exposed a flood insurance nightmare for homeowners. We can also think about the people in Lismore, in Australia, where the residents have endured about three major floods in 18 months. Some residents have left, never to return. Others have offered their house to the market for around 200k. The only way people will be able to live in these areas again is if the houses are built on stilts, or if the community is relocated or if major feats of engineering are undertaken to protect the town.

 

 

I would argue that most people do not lose a lot of sleep over the climate crisis in relation to their portfolio. But a recent study has warned the U.S. housing market could be overvalued by around $200 billion due to unpriced flood risks.

This analysis was published in mid-February in the journal Nature Climate Change. Authored by researchers from the Environmental Defence Fund, the First Street Foundation, and the U.S. Federal Reserve, among others, the study modeled property-level changes in flood risk across the U.S. over the next three decades and warned that low-income households were particularly vulnerable to home value devaluation.

 

 

Jeremy Porter, head of climate implications at the First Street Foundation said it is a huge concern because climate risk is not being priced into the housing market. He goes on to say that the costs now or the valuation of homes don’t consider the realization of that actual flood risk, and that’s not taking into account that there seems to be a huge amount of overvaluation attached to properties across the country.

Insufficient climate risk information when purchasing a home poses a significant financial hazard as households could lose a large proportion of their property value overnight.
Eventually, Burt argues, there is going to be some sort of national tipping point where there is some type of bubble that bursts.

Presently, the study said that nearly 15 million U.S. properties face a 1% annual likelihood of flooding, with expected annual damages to residential properties forecast to exceed $32 billion.
In addition, the research also warned the increasing frequency and severity of flooding amid the deepening climate emergency could see the number of U.S. properties exposed to flooding increase by 11% and average annual losses jump by at least 26% by 2050.

The vacuum in climate-related information when purchasing property needs to be addressed. People need to understand what the climate-related costs are going to look like and rethink their property location if they cannot meet those costs.

 

 

Lower-income property owners are most at risk and this, in turn, has the potential to widen the wealth gap in the U.S. and exacerbate inequality.

How will local government tax revenues be affected?

They could be hit quite badly, as the total for municipalities typically relies heavily on property taxes. Having that tied to a physical asset that is exposed to climate change introduces a lot of risk to the stability of that revenue stream according to DeltaTerra Capital research.

This is not just a domestic issue. It is a problem for countries worldwide. And it morphs into a humanitarian crisis when you start looking at the issue through a global lens.

Munich Re, the world’s largest reinsurance company, observed steep economic losses in 2022 as the climate crisis drove more extreme weather events, such as Hurricane Ian in the U.S. and apocalyptic flooding in Pakistan. Reinsurance refers to insurance for insurance companies.

It estimated that these losses amounted to $270 billion last year, of which around $120 billion was covered by insurance. The insured loss total continues a trend of high losses in recent years.
Someone must pay in the end. Whether insured or uninsured, it becomes an increasing economic burden.

 

 

So, before you purchase your next property consider the climate cost also.

A very Happy Easter.

Be safe and enjoy time with family and/or friends.

Cheers,

Jacque

“The world is reaching the tipping point beyond which climate change may become irreversible. If this happens, we risk denying present and future generations the right to a healthy and sustainable planet – the whole of humanity stands to lose.” - Kofi Annan, Former Secretary-General of the UN