Global Market Comments
November 2, 2023
Fiat Lux
Featured Trade:
(THE SECOND AMERICAN INDUSTRIAL REVOLUTION),
(INDU), (SPY), (QQQ), (GLD), (DBA),
(TSLA), (GOOGL), (XLK), (IBB), (XLE)
(TESTIMONIAL)
Tag Archive for: (GOOGL)
Circulating among the country’s top global strategists this year, visiting their corner offices, camping out in their vacation villas, or cruising on their yachts, I am increasingly hearing about a new investment theme that will lead markets for the next 20 years:
The Second American Industrial Revolution.
It goes something like this.
You remember the first Industrial Revolution, don’t you? I remember it like it was yesterday.
It started in 1775 when a Scottish instrument maker named James Watt invented the modern steam engine. Originally employed for pumping water out of a deep Shropshire coalmine, within 32 years it was powering Robert Fulton’s first commercially successful steamship, the Clermont, up the Hudson River.
The first Industrial Revolution enabled a massive increase in standards of living, kept inflation near zero for a century, and allowed the planet’s population to soar from 1 billion to 7 billion. We are still reaping its immeasurable benefits.
The Second Industrial Revolution is centered on my own neighborhood of San Francisco. It seems like almost every garage in the city is now devoted to a start-up.
The cars have been flushed out onto the streets, making urban parking here a total nightmare. These are turbocharging the rate of technological advancement.
Successes go public rapidly and rake in billions of dollars for the founders overnight. Thirty-year-old billionaires wearing hoodies are becoming commonplace.
However, unlike with past winners, these newly minted titans of industry don’t lock their wealth up in mega mansions, private jets, or the Treasury bond market. They buy a Tesla Plaid for $150,000 with a great sound system and full street-to-street auto-pilot (TSLA), and then reinvest the rest of their windfall in a dozen other startups, seeking to repeat a winning formula.
Many do it.
Thus, the amount of capital available for new ideas is growing by leaps and bounds. As a result, the economy will benefit from the creation of more new technology in the next ten years than it has seen in the past 200.
Computing power is doubling every year. That means your iPhone will have a billion times more computing power in a decade. 3D printing is jumping from the hobby world into large-scale manufacturing. In fact, Elon Musk’s Space X is already making rocket engine parts on such machines.
Drones came out of nowhere and are now popping up everywhere.
It is not just new things that are being invented. Fantastic new ways to analyze and store data, known as “big data” are being created.
Unheard new means of social organization are appearing at breakneck, leading to a sharing economy. Much of the new economy is not about invention, but organization.
The Uber ride-sharing service created $50 billion in market capitalization in only five years and is poised to replace UPS, FedEx, and the US Postal Service with “same hour” intracity deliveries. Now they are offering “Uber Eats” in my neighborhood, which will deliver you anything you want to eat, hot, in ten minutes!
Airbnb is arranging accommodation for 1 million guests a month. They even had 189 German guests staying with Brazilians during the World Cup there. I bet those were interesting living rooms on the final day! (Germany won).
And you are going to spend a lot of Saturday nights at home, alone if you haven’t heard of Match.com, eHarmony.com, or Badoo.com.
“WOW” is becoming the most spoken word in the English language. I hear myself saying I every day.
Biotechnology (IBB), an also-ran for the past half-century, is sprinting to make up for lost time. The field has grown from a dozen scientists in my day 40 years ago, to several hundred thousand today.
The payoff will be the cure for every major disease, like cancer, Parkinson’s, heart disease, AIDS, and diabetes, within ten years. Some of the harder cases, such as arthritis, may take a little longer. Soon, we will be able to manipulate our own DNA, turning genes on and off at will. The weight loss drugs Wegovy and Ozempic promise to eliminate 75% of all self-inflicted illnesses.
The upshot will be the creation of a massive global market for these cures, generating immense profits. American firms will dominate this area, as well.
Energy is the third leg of the innovation powerhouse. Into this basket, you can throw in solar, wind, batteries, biodiesel, and even “new” nuclear (see NuScale (SMR)). The new Tesla Powerwall will be a game changer. Visionary, Elon Musk, is ramping up to make tens of millions of these things.
Use of existing carbon-based fuel sources, such as oil and natural gas, will become vastly more efficient. Fracking is unleashing unlimited new domestic supplies.
Welcome to “Saudi America.”
The government has ordered Detroit to boost vehicle mileage to an average of 55 miles per gallon by 2030. The big firms have all told me they plan to beat that deadline, not litigate it, a complete reversal of philosophy.
Coal will be burned in impoverished emerging markets only, before it disappears completely. Energy costs will drop to a fraction of today’s levels, further boosting corporate profits.
Coal will die, not because of some environmental panacea, but because it is too expensive to rip out of the ground and transport around the world, once you fully account for all its costs.
Years ago, I used to get two pitches for venture capital investments a quarter, if any. Now, I am getting two a day. I can understand only half of them (those that deal with energy and biotech, and some tech).
My friends at Google Venture Capital are getting inundated with 20 a day each! How they keep all of these stories straight is beyond me. I guess that’s why they work for Google (GOOGL).
The rate of change for technology, our economy, and for the financial markets will accelerate to more than exponential. It took 32 years to make the leap from steam engine-powered pumps to ships and was a result of a chance transatlantic trip by Robert Fulton to England, where he stumbled across a huffing and puffing steam engine.
Such a generational change is likely to occur in 32 minutes in today’s hyper-connected world, and much shorter if you work on antivirus software (or write the viruses themselves!). And don’t get me started on AI!
The demographic outlook is about to dramatically improve, flipping from a headwind to a tailwind in 2022. That’s when the population starts producing more big spending Gen Xers and fewer over-saving and underproducing baby boomers. This alone should be at least 1% a year to GDP growth.
China is disappearing as a drag on the US economy. During the nineties and the naughts, they probably sucked 25 million jobs out of the US.
With an “onshoring” trend now in full swing, the jobs ledger has swung in America’s favor. This is one reason that unemployment is steadily falling. Joblessness is becoming China’s problem, not ours.
The consequences for the financial markets will be nothing less than mind-boggling. The short answer is higher for everything. Skyrocketing earnings take equity markets to the moon. Multiples blast off through the top end of historic ranges. The US returns to a steady 5% a year GDP growth, which it clocked in the recent quarter.
What am I bid for the Dow Average (INDU), (SPY), (QQQ) in ten years? Did I hear 240,000, a seven-fold pop from today’s level? Or more?
Don’t think I have been smoking the local agricultural products from California in arriving at these numbers. That is only half the gain that I saw from 1982 to 2000, when the stock average also appreciated 17-fold, from 600 to 10,000.
They’re playing the same movie all over again. Except this time, it’s on triple fast forward.
There will also be commodities (DBA) and real estate booms. Even gold (GLD) gets bid up by emerging central banks bent in increasing their holdings to Western levels as well as falling interest rates.
I tell my kids to save their money, not to fritter it away day trading now because anything they buy in 2020 will increase in value tenfold by 2033. They’ll all look like geniuses like I did during the eighties.
What are my strategist friends doing about this forecast? They are throwing money into US stocks with both bands, especially in technology (XLK), biotech (IBB), and bonds (JNK).
This could go on for decades.
Just thought you’d like to know.
It’s Amazing What You Pick Up on These Things!
Global Market Comments
October 30, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TRAPPED MARKET)
(TSLA), (NVDA), (GOOGL), (AMZN), (NLY)
I should have stayed in Ukraine.
At least that way I would know which direction the fire was coming from, the east. Back here in the US markets, the fire seemed to be coming from every direction all at once.
Good news was bad news and bad news even worse. An S&P 500 down 2.5% certainly left a bruise. The geopolitical outlook in the idle East is getting worse by the day.
But where others find nothing but despair, I see opportunity. Despite all the doom and gloom, all the elements of a yearend rally are setting up nicely. And it could be a sharp one as the time for it to play out is ever shrinking.
Hedge fund quantitative, momentum, and systemic shorts are at all-time highs, creating lots of buying power. AI has gone silent. Key earnings events will be done with the Apple announcement on Thursday, November 2. Ten-year bonds have repeatedly tried but failed to break the 5.00% yield.
Major tech stocks like (TSLA), (NVDA), (GOOGL), and (AMZN) have seen 20% corrections. The Mad Hedge AI Market Timing Index is unable to close below $20 and has been chopping a lot of wood under $30. If a new House speaker cuts a deal to avoid a government shutdown before November 17, it could be off to the races.
The smart thing to do here is to build up a list of stocks higher leverage to falling interest rates. All stocks benefit from falling rates but some much more than others.
One of my favorites is Annaly Capital Management (NLY), one of the largest mortgage real estate investment trusts (REITS). The company borrows money, primarily via short-term repurchase agreements, and reinvests the proceeds in asset-backed securities.
The company’s shares are unusually sensitive to rising overnight interest rates, and its shares are down 50% in a year. A monster rally in the stock is brewing. Oh, and it has a 17% dividend, which will likely get cut but still remain extremely high.
Finally, I want to bid a sad farewell to my old friend and fellow iconoclast Byron Wien. Byron was late of Blackstone and much earlier from Morgan Stanley.
Byron was famed for his “Ten Surprises” which he published each New Year and with which I used to assist him in the early years. This was a list of possible developments which, if they occurred, would have a disproportionate effect on the market.
Byron was 90 and will be missed. One of his favorite pieces of advice was to never retire and Byron was working right up until last week.
Hmmmm. Sounds like good advice to me.
So far in October, we are up +3.56%. My 2023 year-to-date performance is still at an eye-popping +64.36%. The S&P 500 (SPY) is up +7.89% so far in 2023. My trailing one-year return reached +74.44% versus +8.09% for the S&P 500.
That brings my 15-year total return to +661.55%. My average annualized return has fallen back to +47.89%, some 2.81 times the S&P 500 over the same period.
Some 44 of my 49 trades this year have been profitable.
Car Payment Delinquencies Hit Record Rate, with repossessions rising. With interest rate hikes making newer loans more expensive, millions of car owners are struggling to afford their payments. It’s a clear indication of distress at a time when the economy is sending mixed signals, particularly about the health of consumer spending. Usually, a recession indicator but not this time.
US Government Wraps up Fiscal 2023 with a $1.7 Trillion Deficit, up 23% from the previous year, which ended on October 31. It’s a major reason why bonds have been under such pressure since July. But the purchasing power of the total US national debt of $32 trillion fell by $260 billion last year, thanks to the torrid 8.1% inflation rate.
US Core PCE Jumps 0.3% in September, the most in four months. It’s the Fed’s favorite inflation indicator. Drugs, travel, and used cars saw the big price increases. Resilient household demand paired with a pickup in inflation underscores momentum heading into the fourth quarter
Ukraine War has Become a Big Generator at US Defense Companies. Companies such as Lockheed Martin (LMT), General Dynamics (GD), and others expect that existing orders for hundreds of thousands of artillery rounds, hundreds of Patriot missile interceptors, and a surge in orders for armored vehicles expected in the months ahead will underpin their results in coming quarters. Buy the sector on dips
Don’t Expect a Real Estate Crash Anytime Soon, with supplies at 40-year lows. Yes, 8% mortgages are a buzz kill, but 95% of homeowners with mortgages date back to the 3.0% era. No one wants to give up their free lunch. If you’re a mortgage originator, it’s another story.
Existing Home Sales Hit 13-Year Low at 1.13 million, down 8% YOY. The Median Home Price was up 2.8% to $394,300. This is 17% of the peak rate we saw in 2021 when overnight rates were still zero.
Pending Home Sales Rise 1.1% in September to 72.6, but are down 13% YOY. On a signed contract basis. But the absolute level is the lowest in two years. High mortgage rates are the buzz kill. Affordability is at a record low.
Adjustable Rate Mortgages Make a Big Comeback, with 5/1 ARMS costing only 6.99% compared to 8.0% for the conventional 30-year fixed, a 23-year high. Mortgage originations are now down 22% YOY.
US Economy Red Hot at 4.9% Growth Rate, the highest in two years. Unfortunately, the stock market sees a major slowdown in the current quarter. Consumer spending was the big driver.
Tech Selloff has Taken NVIDIA down to a 25 Times Earnings Multiple, the same as Walmart and Target, despite 50% earnings growth for the foreseeable future. This is just at the start of an AI super cycle. Get ready to start loading the boat.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, October 30 at 8:30 AM EST, the Dallas Fed Manufacturing Index is out.
On Tuesday, October 31 at 2:30 PM, the S&P Case Shiller National Home Price Index is released.
On Wednesday, November 1 at 8:30 AM, the JOLTS Job Openings Report is published.
On Thursday, November 2 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, November 3 at 2:30 PM, the October Nonfarm Payroll Report is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, one of the benefits of being married to a British Airways stewardess in the 1970s was unlimited free travel around the world. Ceylon, the Seychelles, and Kenya were no problem.
Usually, you rode in first class, which was half empty, as the British Empire was then rapidly fading. Or you could fly in the cockpit where, on long flights, the pilot usually put the plane on autopilot and went to sleep on the floor, asking me to watch the controls.
That’s how I got to fly a range of larger commercial aircraft, from a Vickers Viscount VC-10 to a Boeing 747. Nothing beats flying a jumbo jet over the North Pole on a clear day, where the unlimited view ahead is nothing less than stunning.
When gold peaked in 1979 at $900 an ounce, up from $34, The Economist magazine asked me to fly from Japan to South Africa and write about the barbarous relic. That I did with great enthusiasm, bringing along my new wife, Kyoko.
Sure enough, as soon as I arrived, I noticed long lines of South Africans cashing in their Krugerands, which they had been saving up for years in the event of a black takeover.
There was only one problem. My wife was Japanese.
While under the complicated apartheid system, the Chinese were relegated to second class status along with Indians, Japanese were treated as “honorary whites” as Japan did an immense amount of trade with the country.
The confusion came when nobody could tell the difference between Chinese and Japanese, not even me. As a result, we were treated as outcasts everywhere he went. There was only one hotel in the country that would take us, the Carlton in Johannesburg, where John and Yoko Lennon stayed earlier that year.
That meant we could only take day trips from Joberg. We traveled up to Pretoria, the national capital, to take in the sights there. For lunch, we went to the best restaurant in town. Not knowing what to do, they placed us in an empty corner and ignored us for 45 minutes. Finally, we were brought some menus.
The Economist asked me to check out the townships where blacks were confined behind high barbed wire fences in communities of 50,000. I was given a contact in the African National Conference, then a terrorist organization. Its leader, Nelson Mandela, had spent decades rotting away in an island prison.
My contact agreed to smuggle us in. While blacks were allowed to leave the townships for work, whites were not permitted in under any circumstances.
So, we were somewhat nonplussed Kyoko and I were asked to climb into the trunk of an old Mercedes. Really? We made it through the gates and into the center of the compound. On getting out of the trunk, we both burst into nervous laughter.
Some honeymoon!
After meeting the leadership, we were assigned no less than 11 bodyguards as whites in the townships were killed on sight. The favored method was to take a bicycle spoke and sever your spinal cord.
We drove the compound inspecting plywood shanties with corrugated iron roofs, brightly painted and packed shoulder to shoulder. The earth was dry and dusty. People were friendly, waving as we drove past. I interviewed several. Then we were smuggled out the same way we came in and hastily dropped on a corner in the city.
Apartheid ended in 1990 when the ANC took control of the country, electing Nelson Mandela as president. A massive white flight ensued which brought people like Elon Musk’s family to Canada and then to Silicon Valley.
Everyone feared the blacks would rise up and slaughter the white population.
It never happened.
Today, South Africa offers one of the more interesting investment opportunities on the continent. The end of apartheid took a great weight off the shoulders of the country’s economy. Check out the (EZA), which nearly tripled off of the 2020 bottom.
Kyoko passed away in 2002 at age 50.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
October 20, 2023
Fiat Lux
Featured Trade:
(INDIA CATCHES A TECH WAVE)
(GOOGL), (AAPL)
With all the tumult going on in the world today, it’s not shocking that big decisions are being made in terms of tech production and manufacturing outsourcing.
These decisions will reverberate through the tech world for a generation.
China used to be the factory of the world and many thought that its economy would rebound from its lockdown lull to carry the tech world on its shoulders.
It’s clear that China will remain in the doldrums.
China and the west are decoupling fast and that means American tech companies are no longer comfortable doing business in the Middle Kingdom.
Many big players like Apple are hitching a ride out of the land of pot stickers and Beijing roast duck.
The latest announcement was Alphabet (GOOGL) who will begin production in India of its Pixel 8 smartphones in time for sales in 2024.
Google will partner with local and global suppliers to put together its first India-made handsets, hardware.
The move from the company responsible for Android, the world’s most-used mobile operating system, adds to a string of successes by India’s government in enticing international device makers to build locally.
Dixon Technologies India and Foxconn Technology Group’s Indian unit are the leading contenders to manufacture the phone.
Indian Prime Minister Narendra Modi’s administration has attracted greater investment from Apple, which opened its first two stores in India this year and is increasingly shifting iPhone production from China to India.
The latest iPhone 15 generation was also the first in the company’s history to launch made-in-India handsets at the same time as those made in China.
Outside of US device makers, Samsung Electronics Co. also manufactures its Galaxy handsets in India and Chinese Android vendors have set up partnerships with local assemblers.
Google counts India as a critical growth engine, where most smartphones run on its Android ecosystem.
However, Google also faces business and regulatory challenges there – startups and companies like Disney have legally challenged some of its in-app policies. Google is also fighting several antitrust battles including one related to alleged abuse of its position in the Android market.
Interestingly, the South Asia country's approach to attracting big manufacturing investments isn't limited to incentives alone.
The government has also implemented comprehensive restrictions to control the influx of foreign electronic devices. It's a strategic blend of both persuasion and coercion, convincing these tech giants to take the plunge into the Indian manufacturing landscape.
Around 200 U.S. companies are actively exploring the possibility of shifting their manufacturing bases from China to India, according to the US-India Strategic and Partnership Forum (USISPF).
It is entirely realistic that in the short future that India will secure the title of the world's largest global manufacturing hub, toppling China's longstanding dominance in the years to come.
These developments are emblematic of a tech manufacturing world in turmoil.
India is perceived as a safe bet to be able to pump out all those gizmos and gadgets that American big tech is reliant on to drive sales.
India also has a massive work force that specializes in software.
It’s easy to say that if American big and small tech hopes to power itself for the next 30 years; they absolutely need the mojo of Indian tech labor and manufacturing to prop up Silicon Valley.
Google moving their supply chain to India gives me more conviction in recommending this stock for the long term.
Dealing with the Cloud works and for every relevant tech company, this division serves as the pipeline to the CEO position.
If this isn’t the case for a tech company, then there’s something egregiously wrong with them!
Take Andy Jassy, the mastermind behind Amazon’s (AMZN) lucrative cloud computing division and was the man who succeeded company founder Jeff Bezos.
He was rewarded this important position based on his performance in the cloud and faces a daunting proposition of following Bezos as CEO.
Bezos incorporated Amazon almost 30 years ago.
Jassy developed a highly profitable and market-leading business, Amazon Web Services, that runs data centers serving a wide range of corporate computing needs.
Cloud 101
If you've been living under a rock the past few years, the cloud phenomenon hasn't passed you by and you still have time to cash in.
You want to hitch your wagon to cloud-based investments in any way, shape, or form.
Amazon leads the cloud industry it created.
It still maintains more than 30% of the cloud market. Microsoft would need to gain a lot of ground to even come close to this jewel of a business.
Amazon relies on AWS to underpin the rest of its businesses and that is why AWS contributes most of Amazon's total operating income.
Total revenue for just the AWS division would operate as a healthy stand-alone tech company if need be.
The future is about the cloud.
These days, the average investor probably hears about the cloud a dozen times a day.
If you work in Silicon Valley, you can quadruple that figure.
So, before we get deep into the weeds with this letter on cloud services, cloud fundamentals, cloud plays, and cloud Trade Alerts, let's get into the basics of what the cloud actually is.
Think of this as a cloud primer.
It's important to understand the cloud, both its strengths and limitations.
Giant companies that have it figured out, such as Salesforce (CRM) and Zscaler (ZS), are some of the fastest-growing companies in the world.
Understand the cloud and you will readily identify its bottlenecks and bulges that can lead to extreme investment opportunities. And that is where I come in.
Cloud storage refers to the online space where you can store data. It resides across multiple remote servers housed inside massive data centers all over the country, some as large as football fields, often in rural areas where land, labor, and electricity are cheap.
They are built using virtualization technology, which means that storage space spans across many different servers and multiple locations. If this sounds crazy, remember that the original Department of Defense packet-switching design was intended to make the system atomic bomb-proof.
As a user, you can access any single server at any one time anywhere in the world. These servers are owned, maintained, and operated by giant third-party companies such as Amazon, Microsoft, and Alphabet (GOOGL), which may or may not charge a fee for using them.
The most important features of cloud storage are:
1) It is a service provided by an external provider.
2) All data is stored outside your computer residing inside an in-house network.
3) A simple Internet connection will allow you to access your data at anytime from anywhere.
4) Because of all these features, sharing data with others is vastly easier, and you can even work with multiple people online at the same time, making it the perfect, collaborative vehicle for our globalized world.
Once you start using the cloud to store a company's data, the benefits are many.
No Maintenance
Many companies, regardless of their size, prefer to store data inside in-house servers and data centers.
However, these require constant 24-hour-a-day maintenance, so the company has to employ a large in-house IT staff to manage them - a costly proposition.
Thanks to cloud storage, businesses can save costs on maintenance since their servers are now the headache of third-party providers.
Instead, they can focus resources on the core aspects of their business where they can add the most value, without worrying about managing IT staff of prima donnas.
Greater Flexibility
Today's employees want to have a better work/life balance and this goal can be best achieved by letting them working remotely which effectively happened because of the public health situation. Increasingly, workers are bending their jobs to fit their lifestyles, and that is certainly the case here at Mad Hedge Fund Trader.
How else can I send off a Trade Alert while hanging from the face of a Swiss Alp?
Cloud storage services, such as Google Drive, offer exactly this kind of flexibility for employees.
With data stored online, it's easy for employees to log into a cloud portal, work on the data they need to, and then log off when they're done. This way a single project can be worked on by a global team, the work handed off from time zone to time zone until it's done.
It also makes them work more efficiently, saving money for penny-pinching entrepreneurs.
Better Collaboration and Communication
In today's business environment, it's common practice for employees to collaborate and communicate with co-workers located around the world.
For example, they may have to work on the same client proposal together or provide feedback on training documents. Cloud-based tools from DocuSign, Dropbox, and Google Drive make collaboration and document management a piece of cake.
These products, which all offer free entry-level versions, allow users to access the latest versions of any document so they can stay on top of real-time changes which can help businesses to better manage workflow, regardless of geographical location.
Data Protection
Another important reason to move to the cloud is for better protection of your data, especially in the event of a natural disaster. Hurricane Sandy wreaked havoc on local data centers in New York City, forcing many websites to shut down their operations for days.
And we haven’t talked about the ransomware attacks by Eastern Europeans on energy company Colonial Pipeline and meat producer JBS Foods.
The cloud simply routes traffic around problem areas as if, yes, they have just been destroyed by a nuclear attack.
It's best to move data to the cloud, to avoid such disruptions because there your data will be stored in multiple locations.
This redundancy makes it so that even if one area is affected, your operations don't have to capitulate, and data remains accessible no matter what happens. It's a system called deduplication.
Lower Overhead
The cloud can save businesses a lot of money.
By outsourcing data storage to cloud providers, businesses save on capital and maintenance costs, money that in turn can be used to expand the business. Setting up an in-house data center requires tens of thousands of dollars in investment, and that's not to mention the maintenance costs it carries.
Plus, considering the security, reduced lag, up-time and controlled environments that providers such as Amazon's AWS have, creating an in-house data center seems about as contemporary as a buggy whip, a corset, or a Model T.
The cloud is where you want to be.
Mad Hedge Technology Letter
October 16, 2023
Fiat Lux
Featured Trade:
(GO STRAIGHT TO THE TOP WITH THE CLOUD)
(AMZN), (ZS), (CRM), (GOOGL)
Mad Hedge Technology Letter
October 11, 2023
Fiat Lux
Featured Trade:
(QUESTIONS POP UP ABOUT GENERATIVE AI)
(GOOGL), (AI)
Google is worried that generative artificial intelligence isn’t as accurate or as useful as currently advertised.
There have been major disagreements among internal Google engineers about whether this service is additive at all.
Google product managers, designers, and engineers have used a chat forum to openly debate the AI tool's effectiveness and utility, with some questioning whether the enormous resources going into development are worth it.
The problem with a great deal of the data they are using to build the software is they cannot independently verify whether it is true or not.
The AI systems are trained on massive amounts of text that form the building blocks of chatbots, but this text is just idling on the internet and that doesn’t mean it's accurate.
Last month, Google unveiled its most ambitious update yet: connecting Bard to its most popular services, such as Gmail, Maps, Docs, and YouTube.
However, rolling out these new updates has coincided with a drove of new complaints about the tool generating made-up facts and giving potentially dangerous advice.
Google’s thousands of low-paid contractors training Bard use convoluted instructions that they’re asked to complete in minutes.
In my opinion, Google is attempting to roll out this product as fast as possible without really focusing on the quality.
Inside and outside the company, the internet-search giant has been criticized for providing low-quality information in a race to keep up with the competition, while brushing aside ethical concerns.
For Google, ensuring the success of its Bard AI chatbot is of utmost importance. The company is far and away the leader in search, its financial lifeblood generates about 80% of parent company Alphabet’s revenue.
At Bard’s launch, the company was upfront about its limitations, including the possibility for the AI tool to generate convincing-sounding lies.
Google takes advantage of an army of underpaid and overworked contractors in order to refine Bard’s responses and I believe that is an extremely rash strategy.
Executives also must consider the consequences of the enormous costs needed to maintain large language models.
Google has reacted by downplaying fears, lack of usefulness, and the sheer fact that they might not have any idea what they are doing.
We are in unknown territory now with unproven technology and Bard could end of becoming a giant bust.
When is the point where engineers egging each other on start to question the core project? Remember, these engineers have monetary and personal incentive to continue with this because they are getting paid around half a million dollars per year.
If this project ends in humiliation for Google, they just move on, take the next engineering job, and Google writes down the losses.
The beginning of 2023 was beset with AI euphoria only to move into the latter half of 2023 where investors realize that it would take a while for any of this technology to meaningfully boost revenue.
Questioning the idea in itself is also another downgrade to AI momentum, and investors need to be cautious right now instead of throwing money at whatever sticks.
At some point, management will need to look at this project closer and not make this only about catching up with Microsoft’s ChatGPT.
Next year will go a long way to prove whether this technology is legitimate or not and we stay on a knife edge to see how it plays out. My bet is nothing really hits until later in the year.
Even if it doesn’t go exactly to plan, I do believe there are some revenue-boosting applications from this technology in the long term so it’s not exactly all negative for Google.
It could be that Google realizes that using the best data coupled with the best engineers is a better combination than what they are doing with Bard.
