6/1/2016

Could Artificial Intelligence Set Monetary Policy?

Instead of relying on the Federal Reserve chair, imagine using a computer to transform mountains of raw economic data into reliable predictions for unemployment, inflation and gross domestic product to ascertain the best level for the federal funds rate.

Machine learning is a dominant sub-field of AI. It refers to technology that allows a computer to acquire a skill for which it hasn’t been explicitly programmed. At its heart, it’s an automated process for recognizing patterns in data and transforming them into possible solutions for a given problem. The more data, the better.

Google’s self-driving car is an example. No team of programmers instructed the car how to respond to every potential scenario on the road. Instead, it learns to drive by detecting patterns in vast amounts of data generated by real drivers.

Hedge funds, such as Two Sigma and Renaissance Technologies, use machine learning to help make investment choices. Amazon.com Inc. uses it to predict customer purchases and Netflix Inc. to recommend movies.

But the number of variables at work is much broader -- ranging from the strength of a dollar to more subjective factors, such as the possibility of a Donald Trump presidency. The world is also highly dynamic: Even long-understood connections between economic variables can change.

Varian concedes that contemporary data are growing exponentially. Quarterly aggregated GDP could soon be supplanted by information on billions of transactions reported in real time. Web scrapers, such as MIT’s Billion Prices Project, already comb the Internet for real-time price points relevant to inflation. Still, he says, machine-learning algorithms would need equally dense historical data to make machines “dramatically better” than humans. And that just isn’t available.

Should machine learning surmount that hurdle, don’t expect the Fed or any other central bank to turn monetary policy completely over to a machine. Economists and computer scientists agree there will always be a role for humans in making monetary policy

Bitcoin Mercantile Exchange Circumvents Foreign Trading Restrictions

China restricts the ability of companies and individuals to exchange their yuan for other currencies, part of the government’s strategy for managing its economy. That can make it complicated and expensive for citizens to invest in overseas securities, while foreign investors face restrictions in trading China stocks. Hayes’ idea is to let Chinese investors use bitcoin to buy synthetic versions of offshore stocks that would normally be off-limits, like Apple or Facebook. Conversely, foreign investors could effectively short a basket of the country’s shares not typically exposed to such strategies.

BitMEX doesn’t sell bitcoin itself. Rather, traders go to sites like Coinbase or Kraken to exchange their money for the cryptocurrency. Then, they can open an account with BitMEX, deposit the bitcoin and use that money to trade. Investors don’t buy stocks themselves, rather they pay in bitcoin for derivatives, or contracts designed to simulate stocks or indexes. Any profits or losses are calculated in the customer’s BitMEX account, and they can withdraw the proceeds to convert back to cash when they choose.

China’s Slowdown Effects Neighboring Countries

Those nearest to China are among the hardest hit as growth in the world's second-largest economy grinds to the slowest pace in a quarter century.

Taiwan's tech manufacturers face increased competition from rivals on the mainland. It's a double whammy for the island, which is also getting hit by slowing demand from China -- its biggest market. Exports dropped for 15 straight months through April, while GDP shrank 0.68 percent from a year earlier.

For Mongolia, the slowdown in its southern neighbor that sucks in about four fifths of its shipments has taken its toll as falling commodity prices undercut its biggest exports like coal, oil and copper. While its economy managed to expand 3.1 percent in the first quarter from a year earlier, that's a far cry from the 17.5 percent pace clocked in the fourth quarter of 2011.

Chinese Wealth Management Products are Dangerous

 The risk of a default chain reaction is looming over the $3.6 trillion market for wealth management products in China.

WMPs, which traditionally funneled money from Chinese individuals into assets from corporate bonds to stocks and derivatives, are now increasingly investing in each other. Such holdings may have swelled to as much as 2.6 trillion yuan ($396 billion) last year, based on estimates from Autonomous Research this month.

The trend has China watchers worried. For starters, it means that bad investments by one WMP could infect others, causing a loss of confidence in products that play an important role in bank funding. It also suggests WMPs are struggling to find enough good assets to meet their return targets. In the event of widespread losses, cross-ownership will create more uncertainty over who’s vulnerable -- a key source of panic in 2008 when soured U.S. mortgage securities triggered a global financial crisis.

Issuance of WMPs, which are sold by banks but often reside off their balance sheets, exploded over the past three years as lenders competed for funds and fees while savers sought returns above those offered on deposits. The products, which offer varying levels of explicit guarantees, are regarded by many as having the implicit backing of banks or local governments.

The outstanding value of WMPs rose to 23.5 trillion yuan, or 35 percent of China’s gross domestic product, at the end of 2015 from 7.1 trillion yuan three years earlier, according to China Central Depository & Clearing Co. An average 3,500 WMPs were issued every week last year, with some mid-tier banks, such as China Merchants Bank Co. and China Everbright Bank Co., especially dependent on the products for funding.

Messaging Apps In Iran Forced to Move Data to Iran Servers

Companies behind popular messaging apps have a year to move all the data they have on Iranian users onto servers in Iran, according to Reuters. This raises concerns about privacy.

The Iranian government wants to be able to track private and semi-private conversations on messaging apps. Many social networks are already blocked in Iran, but it looks like the government wants even more control.

In particular, apps like WhatsApp and Telegram have become incredibly popular in Iran, and the government has no control over what is said on these platforms. Users can create groups on Telegram and reach hundreds of people.

Today’s news proves once again that encryption is a cornerstone of the freedom of speech. Every time the FBI asks for a backdoor, the FBI also endangers countless numbers of people around the world who just want to be able to criticize their government freely.

Chinese Stocks to be Added on MSCI’s Emerging Markets Index

The MSCI Emerging Markets Index is an index created by Morgan Stanley Capital International (MSCI) that is designed to measure equity market performance in global emerging markets.

The Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

Emerging markets are considered relatively risky because they carry additional political, economic and currency risks.

Today, rumors circulated that Chinese stocks would soon be added to MSCI’s Emerging Markets Index. This would channel billions of dollars into its economy. As a result, Chinese stocks soured marking its biggest one-day gain in three months.

If the Fed raises interest rates in June, the dollar will get stronger and Emerging Market currency will depreciate. If China is added to this index, it will weigh down the value when its currency depreciates a because of its peg to the dollar. This happened in august and January.

Carl Icahn takes a 'large position' in Allergan

Icahn is an activist investor where he buys out seats on the board of directors and votes in favor of maximizing shareholder return. Icahn’s large stake in Allergan may lead to squeezing out some shareholder return. For example, buying back shares, giving dividends, or selling the company for a premium.

Billionaire investor Carl Icahn said on Tuesday he had acquired a "large position" in Botox-maker Allergan Plc (AGN.N) and that he was very supportive of Chief Executive Officer Brent Saunders.

Shares of Allergan rose 0.8 percent to $237.85 in mid-morning trading.

Icahn, who did not disclose details of the stake, said in a statement on his website that he was confident in Saunders' ability to enhance value for all Allergan shareholders. (bit.ly/1UatnIM)

Allergan has "no reason to believe that this investment was made for purposes of influencing the actions of management or control of the company," spokesman Mark Marmur said in an emailed statement

Saunders has come close to Icahn before. Saunders became CEO of Allergan after it was bought by Actavis, where he had been CEO, and then changed its name. Saunders had moved into the top spot at Actavis from the CEO job at Forest Labs, which Actavis acquired.

Icahn had a Forest Labs stake and was agitating for change when the company's long-time management ceded control and Saunders took the CEO job in 2013. Icahn said he sold the Forest position when the company changed hands.

Allergan is near to closing the sale of its generic business to Teva Pharmaceutical Industries (TEVA.TA). Once that happens, Saunders has said the company will be able to make acquisitions of more than $1 billion. Allergan needs to pay off more debt before it will make even bigger deals, he has said.

The move comes a few months after Allergan's plans to be bought by Pfizer fell apart. In that so-called "inversion" deal, Pfizer would have moved its headquarter to Dublin, where Allergan is based, in order to lower the taxes it pays in the United States.

Volkswagen Posts Positive 1Q Earnings

This one goes out to the haters: Volkswagen posted positive first quarter earnings. It's a start for the battered emissions-rigging auto giant, but net profit was still down 20% from last year. It’s been a tough road for VW this year: falling market share in its biggest market (R.I.P. China), severed brand loyalty and investor revolts are just a few of the fun obstacles VW has faced. Fun fact: Audi and Porsche make up 40% of the company’s revenues, but a full 70% of its profit. In other words, it's tough to invest in a company called Volkswagen. It's a bit easier to go for a side brand with a less-hated name.

Starbucks Using Nitrogen in their Cold Brew

Nitro cold brew coffee started dotting menus of local cafes and trendy shops like Stumptown Coffee Roasters in the past few years. It's often served on tap like beer, and has a creamier, richer taste than regular cold brew coffee, which is brewed with cold or room temperature water, vs. iced coffee made by serving hot brewed coffee over ice.

Starbucks plans to start tapping kegs this summer — for ice-cold coffee.

The Seattle-based coffee company said Tuesday it will introduce a nitrogen-infused version of its cold brew coffee in stores as it aims to capitalize on the explosive growth in chilled coffee drinks.

The company that made a morning hot coffee run a staple of American culture wants a stronger presence in cold beverages. It could not only boost sales during hot summer months, but help store traffic in what might otherwise be sluggish afternoons and evenings.

Starbucks said iced coffee consumption has grown 75% in the past decade and sales of cold brew in particular grew nearly 340% between 2010 and 2015, based on data from market research firms NPD Group and Mintel. Even Dairy Queen, the fast food chain known for its soft-serve cones and Blizzard treats, last week started selling iced coffee and mixing its soft serve with cold coffee to make drinks called frappes.

India’s Economic Growth

India's economy grew by 7.9% year-over-year in the first quarter of 2016, according to the country's Statistics Ministry.

That's an increase from the fourth quarter's 7.2% print.

And it's above economists' expectations of 7.5% gross-domestic-product growth, according to the Bloomberg consensus.

But while this GDP figure makes India stand out among its worse-off BRIC emerging-economy peers, there are some doubts about its credibility.

"There is some evidence that India's economy has picked up speed recently but today's remarkably strong GDP data are hard to believe," Capital Economics' India economist Shilan Shah wrote in a note to clients.

"The short point is that — as we have cautioned since the release of the revised GDP series last year — we should take the official GDP data, and the world-beating rates of growth they are suggesting, with a pinch of salt."

Instagram Making it Easier for People Making Money on it

“We’ve grown to 200,000 active advertisers on Instagram, and the vast majority of those are small to medium businesses. Fifty percent of people follow a business on Instagram, and sixty percent learn about products and services on Instagram.”

Instagram this morning officially announced the launch of its tools for business users, including new business profiles, analytics and the ability to turn Instagram posts into ads directly from the Instagram app itself. The launch comes following a series of leaks and reports of the tools’ imminent launch, and largely confirms details we already knew — like how the profiles would be structured, and what sort of insights on posts and audience demographics would be available.

In the future, Instagram’s mobile ad tools may allow users to create different kinds of ads, like those that look to gather customer data for lead generation purposes. Plus, the company is thinking about ways it can “close the loop” when it comes to the ads’ performance.