Weekly Snapshot: 07/16/2017

Links

  • Bank of Canada raises rates for the first time in seven years: “One of the puzzles for the Bank of Canada and other central banks is that inflation is still low and falling. Central bankers typically raise rates to keep inflation in check. That isn’t the problem in Canada, where consumer prices have been rising at well below the bank’s 2-per-cent inflation target.”
  • Jefferies on IBM Watson: “The narrative isn’t the product of any single malfunction, but rather the result of overhyped marketing, deficiencies in operating with deep learning and GPUs and intensive data preparation demands.”
  • AI creates a fake Obama video: “The researchers were careful to not generate videos where they put words in Obama’s mouth that he did not at some other time utter himself. However, such fake videos are “likely possible soon,” says study lead author Supasorn Suwajanakorn, a computer scientist at the University of Washington.”
  • Elliott counter-bids for Oncor: “The hedge fund would break even on its debt investment if the Berkshire bid prevails because gains in some parts of its debt holdings, which would be paid out in full, would offset losses in the unsecured bonds it holds, where it would take a deep haircut, the people said.”
  • Cosco shipping bids on Orient Overseas: “The proposed deal is the latest in a wave of mergers and acquisitions in global container shipping that has left the top six shipping lines controlling 63 percent of the market. OOIL’s shipping subsidiary, OOCL, has a 2.7 percent slice of the market.”
  • Visa offers incentives to push cashless transactions: “Such a move doubles down on the idea that Visa sees cash as its biggest competitor. Visa is securely the leader of the US card payments market — the firm processed 59% of transaction volume last year, more than double that of MasterCard.”

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Investment Theory #22: Klarman’s 2000 Letter

Let’s continue our series on the 1990’s. You may recall that 2000 was the year the bubble popped and Klarman began putting his large cash balances to work.

Klarman is a well-respected value investor who founded the Baupost Group in 1982. Since then he has generated an average annual return of 19%. Klarman’s investing philosophy can be summed up by the title of his book Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.

This series of posts will reflect on Klarman’s activity during the period 1995 to 2001. Links to past posts: 1995, 1996, 1997, 1998, 1999

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Weekly Snapshot: 07/09/2017

Bailout of Banca Monte dei Paschi di Siena

  • Financial Times: “The green light for the Monte Paschi rescue comes less than a week after the government stepped in to give Intesa Sanpaolo, Italy’s largest and best-capitalised bank, €5bn in cash to buy the good assets of two failing banks in the Veneto region with an emergency decree. The cost to Italian taxpayers of the rescue could go as high as €17bn, the government said.”
  • Bloomberg: “In all, after the planned reimbursements for misselling bonds to retail investors, Monte Paschi will receive 8.1 billion euros of fresh equity. Once the process is complete, Italy will hold 70 percent of the bank.”

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Economics #8: Cost Disease

 

In economics, there is a simple idea called the Cobb-Douglas production function that tries to explain the relationship between labor (the total number of person-hours worked), capital (the real value of all machinery, equipment, and buildings), total factor productivity (the ability to produce more output with less input), and the total output of an economy. The idea is that since labor and capital are relatively fixed, economies grow by increasing their productivity, which technology is the main driver of.

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Weekly Snapshot: 06/25/2017

MSCI includes Chinese stocks in its global index

  • Reuters on China’s poor corporate governance: China ranks ninth out of 11 Asian economies for corporate governance, according to the ACGA. Its overall scores have declined since 2014.
  • FT on the market’s reaction to the decision: “MSCI’s move means mainland equities, known as A-shares, will next year be included in its flagship emerging markets index, obliging the estimated $1.6tn of investment funds that track the index to buy the stocks.”
  • Fortune on the stocks included: “In total, those 222 companies are worth $3.8 trillion in combined market value, but will account for a mere 0.7% of the MSCI’s emerging market index.”

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Programming #10: AI Sudoku

Sudoku is one of those NP-Complete problems that brute force solutions have a problem with. Consider a board with a single blank space, we would have to work through 9 possibilities to find the right answer. For two blank spaces, we would work through 9 possibilities for the first space, and then for each of those possibilities, 9 for the second.

This simplifies to a time complexity of O(n^m) where n is the number of possibilities for each square (9 in normal Sudoku) and m is the number of blank spaces. A hard Sudoku problem with 50 blank spaces would take about 5.15 * 1047 computations, which would take longer than the age of the universe to solve with a decent computer.

This is where artificial intelligence (AI) comes into play. Think of AI less as a Skynet robot and more as a set of hacks to solve exponential problems like Sudoku. Code for this post can be found here.
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Week In Review 06/18/2017

Fed Raises Rates

  • From 1.00 percent to 1.25 percent: The Fed also gave a first clear outline on its plan to reduce its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession.”
  • Neel Kashkari continues to dissent: “In short, the economy is sending mixed signals: a tight labor market and weakening inflation.”

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