The Logic Behind AI’s All Time Highs

The Logic Behind AI’s All Time Highs

Summary:To cut down on AI research process times, firms are investing in hardware – like coprocessors and GPUs.AI will help companies cut costs and improve revenues.VC’s don’t expect AI to slow down anytime soon, they are quite excited.Imagine a time when computers start to beat humans at their own games, like world class grandmaster chess players, the best Go players or trivia champions. Well, this actually happened years ago.With the power of artificial intelligence and big data, computers are able to solve complex scenarios like this much faster than humans. Watson and Deep Blue, developed by IBM, or AlphaGo, developed by Alphabet subsidiary DeepMind, were the systems behind these experiments and are likely the most well-known examples of artificial intelligence (AI). While not a small feat at their time, these experiments now represent a fraction of what artificial intelligence can accomplish today.The MacroAI is coming of age, but its roots date back to 1666 when Gottfried Leibniz (a German philosopher, mathematician, and all around Renaissance man) theorized that all ideas are basically a combination of a small amount of concepts.¹ Similar to how humans and computers can recognize numbers. The number “8” for example is comprised of two little o’s stacked on top of each other vertically or how all of physical life is made up of the relatively small amount of elements in the periodic table. Breaking things down into its components, that being physical objects or numbers, is what Leibniz essentially theorized and how data scientists actually view and solve problems today.This is relevant to AI because neural networks (one of the many AI research techniques) break...
Transportation is Evolving

Transportation is Evolving

Summary:Macro trends signal a slowing picture for the automotive sector, from inventory-to-sales to production.To fight the challenging macro, Detroit and others are doubling down on innovation in autonomous and alternative energy.Investors can expect early adopters to step in as early as 2020.The number of autonomous vehicle testing permits in California alone has increased 4X since September of 2015. Back then, only 9 firms had permits from the California Department of Motor Vehicles. Permit holders today include the major players; Apple, Google, Ford and many more. From indicators like this, our opinion is the automotive industry is pivoting.1The electronic vehicle (EV) marketplace has also experienced substantial growth. Plug-in vehicle market share in the United States grew 37% in H1 2017 vs H1 2016. The absolute market share is still minimal (1.1% in H1 2017), but just like the aforementioned trend in autonomous driving, the growth is undeniable.2The traditional automotive market is being disrupted by a technological revolution. The bulk of this attack is being driven by the world’s largest tech and auto companies. The ultimate goal is to make roads safer, more efficient, decrease barriers to entry (both from a user and technological point of view) and spur growth in the automotive industry. As such, your commute to work will likely drastically change in the coming years.The Macro Auto Picture From a high level, the automotive sector has beaten the market year-to-date (YTD).  A well-diversified automotive ETF (CARZ by First Trust) is up 19.5% while the S&P 500 is up 12.97% YTD. Last year, autos in aggregate had largely underperformed, down -4.6% when the market was positive 10%. Prior to...
The Death of Retail

The Death of Retail

Summary:E-commerce is disrupting traditional retail and continues to expand with a sales growth rate of 14% year-over-year.AMZN / WFM exemplifies how the retail landscape is shifting – SHLD exemplifies the hardships of a restructuring.A new age of consumer spending has seemingly taken some of the retail sector by surprise. Brick and mortar stores are battling a time where 95% of Americans are within arm’s reach of their smartphone 24/7 and e-commerce sales are consistently growing at a rate of 14% year-over-year.¹Are statistics like this only the beginning, or are concerns overblown? To find out, investors should start from the top.The Macro Retail Environment There is no question that the Internet is a key player to any modern omnichannel sales strategy. However, according to the St. Louis Fed, surprisingly enough, e-commerce retail sales as a percentage of total retail sales currently stands at 8.5%, per the latest quarterly update in May 2017 – The pervasiveness of this trend and its aforementioned growth rate is concerning to players who haven’t gained a foothold in this channel yet.E-commerce has penetrated retail sales in a material way, but in some sectors more than others. According to sector analysis broken down by the North American Industry Classification System in the latest US Census Bureau’s Annual Retail Trade Report, the “electronic shopping and mail-order” sector is dominated by e-commerce; where online sales drive 68% of total sales.² Within this sector, we have online behemoth Amazon. Interestingly enough, Amazon is reported to power 43% of the American online retail market in 2016, according to Slice Intelligence.³ The use of robotics including cloud, industrial automation, virtual service...
How to Interpret Fed-speak

How to Interpret Fed-speak

Summary:The Beige Book is a great resource for investors looking for macro themes and insight into the Fed’s anecdotal inputs.The Fed has discussed implementing a “caps” strategy in order to reduce securities holdings.Short term traders might also be interested in the Fed Minutes for a specific trading opportunity.Everyone knows the Fed is data dependent, it’s a famous phrase used in all of their statements. “The actual path of the federal funds rate will depend on the economic outlook as informed by incoming data,” as the Fed put it in their latest release1. But what should investors exactly look at when deciphering the Fed?Just like how technical traders base their decisions off a particular oscillator or how a fundamental investor gets an edge by following a particular section of an earnings release, the Federal Open Market Committee (FOMC) and market participants alike, digest numerous data points and anecdotes to paint a mosaic of the US economy and craft policy accordingly. Generally speaking, this comes from the 12 FOMC members, which is structured as follows: seven board governors, the President of the Federal Reserve Bank of New York, and four other reserve bank presidents. All FOMC members present their case on economic conditions. Moreover, non-voting reserve bank presidents also voice their opinion. Some of the variables these officials take into consideration can be found in two key releases.Many investors are already aware of these releases, but glance over them. Just about any economic calendar has these events highlighted, but lack mainstream in-depth following. The content of these reports doesn’t always move the market as much as an FOMC Meeting Announcement, energy...
The Calm before a VIX Pop: Options and Volatility Strategies

The Calm before a VIX Pop: Options and Volatility Strategies

Summary:Markets are near highs and volatility is near lows, historical data shows that a low VIX can be taken advantage of for short term trades.Seasonality of VIX closing prices vs. mean and median levels since 1990.Macro reasons to consider trading protection.Volatility is near multi-year lows as the major indices have been trading just under all-time highs. In February, the Dow Jones Industrial Average crossed above 20,000, the S&P 500 traded above 2,300 and the VIX temporarily broke below 10.This is all occurring at the same time macroeconomic uncertainty is quantifiably at an all-time high, the Fed and other global central banks are unwinding the biggest monetary intervention ever, waves of populism are electing new political administrations, and aggressive stock valuations are the norm.For context, the below charts quantify and depict a number of the above topics. Starting off with equity returns and current volatility levels.Low Implied VolatilityThe SPY (SPDR S&P 500 ETF Trust) is up 60% cumulatively over the last 10 years. As such, volatility derived from its options is near all-time lows. Other major products like the Russell 2000, Dow Jones Industrial Average, and NASDAQ 100 (as measured by the IWM, DIA and QQQ respectively) are also at relative lows implied volatility wise. Depicted below from Interactive Brokers (IB). (https://www.interactivebrokers.com/en/index.php?f=14099#tws-software)The VIX (Implied Volatility on S&P 500 30-Day Options) is another measure of volatility and complacency. As depicted below from IB, the CBOE’s VIX is hovering at 10-year lows. But what happens when the market inevitability has a hiccup? In the next chart, we explore what happens to the volatility of options on the SPY.Across the term structure (each...
Tech Trend: How to Play Cybersecurity

Tech Trend: How to Play Cybersecurity

Summary:The cybersecurity market is estimated to be worth $101-$170 billion by 2020 vs. $88 billion currently.The majority of executives and IT staff are not confident in their current infrastructure.By 2030, there will be over 49 billion connected devices, or about 6.5 devices per person.The internet has been growing at an incredible clip…but so has cybersecurity threats. The internet of things, mobile applications and other connected mediums have woven their way into our daily work lives and at-home routines. Criminals view this as an opportunity to subtly connect to your smart device in order to steal your personal or professional data; however, billions of dollars are getting put to work to prevent such an occurrence.Specifically, the security market is estimated to be an $88.8 billion dollar market by the end of 2016, according to Gartner – a public firm that specializes in IT research and advisory services. Executives are clearly demanding that their IT departments batten down the hatches and prepare for a more sophisticated battle. Other sources have the security market growing at a compounded annual growth rate of 9.8%.Despite the investments to thwart these criminals, C-Suite executives are still concerned. A recent survey from the NYSE indicated that 66% of surveyed board members are not confident that their companies are properly secured from cyber-attacks. In a separate report, conducted by Barkly Cybersecurity, 50% of information technology and security professionals surveyed were not confident in their respective efforts to protect their firms’ data.With all this concern, the future holds even greater capital flows into cybersecurity. Conservative estimates foresee the cybersecurity market being worth $101.6 billion by 2020. More aggressive...