(CHINA) Archives

Future Of AI Patents And Law

The world is rapidly shifting into a new paradigm where not only do people invent, but people also build artificial intelligence that can invent.

This will have massive ramifications for the business world and the tech industry which is the avant-garde of the business world.

Recent decisions from South Africa and Australia that an artificial intelligence machine can be listed as an inventor on a patent could spur these two locales into being one of the most competitive tech scenes in the world.

The U.S. and Europe will need to figure out what it means to be an inventor.

Registering A.I. as an inventor could potentially mean that multinational corporations won’t shoulder the blame if some sort of insidious experiment with A.I. goes horribly wrong crushing half of mankind.

It also opens up the possibility of some “A.I. invented” app triggering 1000X growth delivering prosperity to half of mankind.

The wide range of possibilities is enough to keep one up at night, and the deeper knock-on effect is that A.I. is now prime for game time.

The rapid acceleration of not only the quantity of A.I., but the increasing quality of A.I. means that countries will need to make some high-stakes business decisions on where A.I. fits into the law and patent system.

Courts in the U.S. and U.K. are expected to issue rulings later this year, and policymakers are gathering information on how to deal with the rising use of AI.

Another piece to the puzzle is how China will treat A.I. and the knock-on effects on American consumers and American businesses.

This sub-sector has been identified as one of the “must-win technologies of the future” by the U.S. administration.

China also leads in AI as it relates to facial recognition and has a database of 1.3 billion citizens to pull data from.

China is pursuing a centrally controlled strategy with hyperlocal implementation. Values and goals are set from above, and resources are made available.

At the local level of municipalities, cities, and provinces, regional administrations compete for the new AI clusters.

The result is a national and regional administrative state that works closely with research, investors, and industry to build a successful AI ecosystem.

In either case, American companies need a verdict and the initial framework of how to treat A.I. in terms of who owns the patents and what that means, or they risk falling behind places like China which is hell-bent on being the first A.I. superpower.

Imagine if all companies were protected from anything negative that AI manufactured and not only with social media.

One could understand how investors could win out big time if a flood of capital nosedived into controversial projects that became money generators.

Big tech has the capital and connections in Washington to advance the initiative.

Another project that comes to mind that would benefit from AI law is Elon Musk-supported Neuralink.

Elon Musk wants everyone to get brain surgery. Specifically, he wants everyone to get a brain implant — the brain-machine interface created by his company, Neuralink. He says it will be able to solve any number of medical conditions — including paralysis, anxiety, and addiction.

A project like this is high risk — a lot could go wrong with it.

But what if the law was set up to just allow investors to write off the externalities and fiscal costs of a failed project?

These rulings also have massive consequences in where the new Silicon Valley migrates to and if the rules are favorable in South Africa, what’s stopping Facebook from exploring an opening of a Cape Town subsidiary?

Not much is the answer.

The issue of inventorship is just a small part of the dilemma over how to deal with AI, such as what types of AI software are eligible for a patent and who owns the massive amounts of data required to “teach” the machines.

A decision clarifying which AI inventions are eligible for patenting would be impactful.

Ultimately, AI is a high-stake game that gets more important by the day and so far there has been nothing detrimental that will affect the fortunes of big tech and their quest for higher share prices.

October 9, 2023

Tech Letter

Mad Hedge Technology Letter
October 9, 2023
Fiat Lux

Featured Trade:

(GLOBAL WAR THREATENS TECH RALLY)
(GOOGL), (MSFT), (LMT), (EV), (CHINA)

Global War Threatens Tech Rally

Tech Letter

Hot wars play a central role in accelerating inflation and the world’s newest kinetic war in the Middle East could prove toxic to the Fed’s quest to quell high inflation.

First, condolences to the atrocities that have occurred in the past 72 hours, the damage to families, society, and communities are hurtful and long-lasting.

Conflict in the Middle East means higher energy prices because a higher risk premium will be attached to the cost of logistics and production.

The Middle East has some of the highest outputs of oil and natural gas in the world with supply from Qatar, Saudi Arabia, and Iran flooding the world with cheap energy.

What does that mean for technology stocks?

I can tell you nothing good.

Physical wars rotate demand to certain goods that will deliver the consumer the best outcomes and in this case food and shelter. Running a supermarket during the lockdowns was a small gold mine. That means there is a high chance that money rotates out of Google and Microsoft and goes into defense and military stocks like Raytheon and Lockheed Martin (LMT).

Unless products are critical to survival, goods like EVs and Tesla’s (TSLA) are placed on the backburner.

Few will have the money to charge their EVs with another wave of price increases coming down the pipeline. I already hear Norwegians complaining about the cost of fueling EVs after cheap Russian energy was shut off to them.

Forget about an iPhone upgrade cycle.

Kids will just have to deal with the iPhone 14 for longer.

High inflation plays a leading role in wars and conflicts. But that doesn’t mean that economic policy doesn’t matter anymore. Less wars result in bigger tailwinds to deflation.

China also owns the rare metals industry and policy might dictate to hold back supply and earmark it for national and military industries instead of selling to foreigners.

Tesla’s might not be able to be produced anymore because they can’t secure the right materials like cobalt from China.

If a full-fledged regional war intensifies, then the US economy is almost guaranteed to lock in 4% as the new CPI low for this inflationary cycle. The next move would be higher.

The US has already pledge financial and military aid to Israel and that bill will be footed by the US taxpayer.

If this war begins to get expensive and the US starts shipping off $200 billion every few months to the Middle East then this fiscal spending will bring forward more inflation.

Ultimately, if a third war in the shape of Taiwan rears its ugly head, we could experience high 20% inflation like we did in the 1970’s, but this time around, we would do it with close to $34 trillion in US federal debt and those onerous debt interest payments.

The technology sector better hope and pray for a quick resolution to the Middle East conflict in order to stave off the threat of destroying the Santa Claus rally in the Nasdaq.

A third concurrent war in Taiwan would mean instant recession, spiking bond yields, $150 per barrel oil, and technology stocks experiencing a wild pullback.

In the meantime, the newest stresses will guarantee the Eurozone plus UK into a deep recession because they aren’t self-sufficient.

It also adds even more stress to the US economy which is the last man standing at this point because US tech earnings are still in the green.

Certain stocks do very well in times of geopolitics, but these multinational globalized companies have a lot to sacrifice if the world goes pear-shaped.

October 6, 2023

Tech Letter

Mad Hedge Technology Letter
October 6, 2023
Fiat Lux

Featured Trade:

(TESLA GAINS UPPER HAND WITH HELP FROM CHINA)
(TSLA), (LCID), (RIVN), (EV), (CHINA)

Tesla Gains Upper Hand With Help From China

Tech Letter

The American consumer has been battered.

Declining iPhone sales says it all, but that is nothing compared to the Chinese consumer who are drowning in a cesspool of their own debt.

The Chinese economy is threatening to become the new Japanese economy which is infamous for its run of lost decade after lost decade.

Who cares?

I don’t, but lithium prices do and that’s why we need to focus on as the lust for EVs in the western world picks up pace.

The Chinese have cornered the lithium market and supply has expanded.

This should allow EV makers like Elon Musk to lower the price of Tesla’s further effectively winning the price war. The inverse of Bidenomics sometimes happens, but usually takes the Chinese to flood the market with extra product and in this case lithium.

Every small EV stock should be ignored. There is Tesla and nobody else.

Lithium prices are crashing around the world.

After a buying frenzy sent global prices soaring though last year, they’ve since plunged as electric vehicle demand crashes and supplies are expected to remain strong.

The weakness has been especially pronounced there as battery makers tap stockpiles built up during the boom, while demand concerns are being exacerbated by wider fears about the country’s economy.

Chinese sentiment is being hurt by weak consumer and business confidence and an ongoing property crisis.

The nation’s EV sales growth slowed to 37% in the second quarter from a year earlier, versus a global average of 50%.

That’s helped push most-active Chinese lithium carbonate futures down about 37% since they started trading in July. They’re at a level that works out to a roughly 35% discount to lithium hydroxide futures in the US, according to traders.

The price decline has further to go. Lithium carbonate and hydroxide could drop another 30% in the near term on the back of weaker demand, high inventories and improved supply.

Tesla can lower the price of EVs as it seeks to capitalize on US consumer’s lack of discretionary budget as inflation takes a bite out of their daily budgets.

Today, the carmaker marked down the starting price of the base Model 3 by $1,250 to $38,990.

Tesla also lopped $2,250 off the price of the performance version of the Model 3, which now starts at $50,990, and $2,000 off the long-range and performance versions of the Model Y sport utility vehicle, which now cost $48,490 and $52,490, respectively.

The biggest factor contributing to Tesla’s price cuts has been the lifting of production constraints that held the company back for years.

Tesla still maintains a dominant position in the US electric-vehicle market, though it’s increasingly relied on discounting to preserve its position. Fresh product could help buoy pricing in the coming months, with the carmaker recently debuting an updated version of the Model 3.

Tesla has already identified the race to the bottom for the price of EVs and this should crush the rest of the competition as EVs turn from luxury goods to commodities.

Just take a look at rivals like Rivian (RIVN) who lose $33,000 for each vehicle they sell. EV maker Lucid’s $338,000 loss per car Is turning investors off

I wouldn’t put a cent into any other EV stock aside from Tesla.

They will be the future iPad on wheels that Steve Jobs dreamed about and now they can lower prices even more aggressively now that the price of lithium has crashed.

Musk was smart to start the price war earlier to crush competition.

October 17, 2022

Tech Letter

Mad Hedge Technology Letter
October 17, 2022
Fiat Lux

Featured Trade:

(THE BIG TALK)
(SOXX), (CHINA), (NVDA), (MU), (LNG)

The Big Talk

Tech Letter

A lot of people haven’t talked about what’s going on in China. Other world events have lessened the focus in the East.

Yet people should be talking about China now.

Authoritarian China is a way bigger deal than what’s happening in the backwaters of Eastern Europe, and I’ll explain.

What on earth could overshadow all of that?

The US administration announced Chinese semiconductor bans, essentially blocking the transfer of intellectual property to China and forcing American executives to quit en masse or face the risk of losing US citizenship.

To say this is escalatory is an understatement.

Remember that previous US president Donald Trump forced the same interests to apply for special licenses, but never ramped up the tension to fever pitch and allowed business to advance.

The result is every American executive and engineer working in China’s semiconductor manufacturing industry resigning, paralyzing Chinese manufacturing overnight.

When combined with a global demand reduction, this is a heavy blow to the short-term prospects of American chip companies (SOXX) that have deep interests in China such as Applied Materials, Intel, Micron (MU), Nvidia (NVDA) and AMD.

US Commerce department also levied a bevy of restrictions on supplying US machinery that’s capable of making advanced semiconductors. It’s going after the types of memory chips and logic components that are at the heart of state-of-the art designs.

For companies with plants in China, including non-US firms, the rules will create additional hurdles and require government signoff.

South Korea’s SK Hynix Inc. is one of the world’s largest makers of memory chips and has facilities in China as part of a supply network that sends components around the world.

The biggest name to be added to the list ban is Yangtze Memory Technologies Co. The memory-chip maker is considered the most successful chip company in China wielding the best technology obviously thanks to American technology.

I found it interesting that at almost the same time, China instructed local resellers to stop selling liquid natural gas (LNG) to Europe as mounting proof China views Europe and America through the same lens.

The rapid escalation means the fragmenting of the United States economy and China will accelerate into the future resulting in the inevitable on-shoring of American chip factories back to the United States which we are already seeing.

Other industries will need to be on-shored back to United States and other friendly countries too.

In the short to mid-term, this means higher costs for the American chip companies as reinvesting into capital projects are a multi-billion dollar proposition.

Also, the pain of losing the large China market hurts badly for the stock and is damaging to the annual revenue outlook.

Expect many revenue downgrades coming down the pipeline.

Inflationary costs is another driver of revenue downgrades too as paying these specialists and keeping the lights on have gotten more expensive.

The chip companies won’t be able to substitute the China demand when we are on the verge of recessions in the United States and Europe.

Ultimately, the infamous boom-bust cycle for the chip stocks will get a more prolonged bust this time around as demand and supply are both painfully reduced.

The boom also will be larger because of coming from a lower cost basis.

However, I would highly doubt a bounce back of any chips stocks in the short-term unless broader market forces drag up stocks which could happen.

We will most likely experience strong bear market rallies met by thundering selloffs.

I would avoid any long term investments into chip companies now and just trade the bounces short-term.

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