David Fuller and Eoin Treacy's Comment of the Day
Category - Technology

    Howard Marks: Why the Word "When" Is Dangerous

    This interview from the Motley Fool may be of interest to subscribers. Here is a section:

    3. The words you should never say

    Bill Mann: Do you think that there are opinions or beliefs in the market that you find to be particularly unhealthy for investors?

    Howard Marks: The first thing (and I try to make this clear in the book, and it's essential if people are going to be able to deal with cycles) is everybody wants an easy answer. Everyone wants to know how long an upswing lasts. And the first step is you must dispense with any concept of regularity.

    The whole book is based around Mark Twain's statement that history does not repeat but it does rhyme. When he says it doesn't repeat, in our case he wasn't talking about the market. He was talking about history. But the truth is market cycles vary one to the next in terms of their amplitude, their speed, their violence, their duration. It's all different. And so people want to know how long an upswing is and the answer is we absolutely can't tell them. So expecting regularity and, thus, predictability is wrong.

    And then you can go from there to the whole concept of predictions. What makes the market go up and down? To a small extent it is what I call fundamental developments in the economy and the companies. But to a large extent it's psychology or, let's say, popularity. And it should be clear by now to everyone that the swings in popularity are unpredictable. And if they are, then most forecasts are not going to work.

    So the next concept is that people say to me, "OK, when will the market turn down?" And I never answer a question that starts with the word "when." In the investment business, sometimes we know what's going to happen. We never know when. So I would dispense with that immediately.

    You must accept the ambiguity in the situation and accept the need to live with uncertainty. And that's why in the book I say there are certain words that every good investor should drive out of his vocabulary. Things like never, always, must, can't, has to. These words are out. We can talk about likely events. We can talk about probabilities. More and less likely. But we can never say has to or won't.

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    Robot ETF Leaves Pros in Dust, Scoring Wins on Small-Cap Fliers

    This article by Sarah Ponczek for Bloomberg may be of interest to subscribers. Here is a section:

    So AEIQ is taking fliers on tiny companies and riding the wave in small caps to beat the S&P, right? But it outdoes small-cap indexes, too. Since inception, the ETF is beating the Russell 2000 with noticeable help from the “selection effect,’’ meaning picking particularly good securities, Bloomberg data show. AIEQ’s active return over the small-cap gauge is 6.03 percent, all of which can be explained by individual stock
    selection.

    To true believers, nothing random is happening. “It’s not serendipity or luck. Rather, it is grunt work analysis of computational analysis of data and looking at your blogs and social media and press releases, and a conglomerate of all that,’’ Rick Roche, managing director at Little Harbor

    Advisors, a boutique investment firm focused on quantitative strategies, said in an interview at Bloomberg’s New York headquarters. “Machine learning’s power in terms of getting data and uncovering potential alpha is much better in the small cap and the mid cap space than it is large cap.”

    It’s easy to be impressed by the way AIEQ’s seems to adapt over time, adding large caps to its portfolio and dialing down smaller companies right as they fell out of favor. In truth, though, other things may be going on. Sure, the machine might’ve sussed out an unwinding of the small-cap trade in the wake of rising rates and less trade bluster. Less amazingly, the ETF may have just needed to buy larger stocks as it got bigger and swelled toward $200 million.

    Either way, it helped. Since the start of August, AIEQ’s greater allocation to larger companies has juiced its performance, a Bloomberg analysis shows. “That’s the benefit of our strategy, right? It is very flexible and dynamic,’’ said Art Amador, COO and co-founder of Equbot, the company behind the ETF’s software. “The idea of, ‘Hey, it’s small caps today,’ doesn’t mean tomorrow we’re going to keep playing in the small-cap universe. In fact, it’s quite the opposite.’’

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    Email of the day on timelines to implementing new technologies

    About the development of technologies in Batteries and EV, I think a great standpoint is that of Umicore (UMI BB), which is one of the main producers of cathodes. They had their Capital Market Day in June, and with a bit of patience one can follow the webcast on their site here:  , and specifically the part presented by Mr Vandeputte 

    One of the points made is that manufacturing autos is complex to the point no one takes on technological risk with a light heart, so the technology currently in use will probably stay around for a years before we get some leap forward into something different such as solid-state batteries.

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    Ericsson profit smashes forecasts as 5G buzz grows

    This article by Dominic Chopping for MarketWatch may be of interest to subscribers. Here it is in full:

    Ericsson AB's ERIC, +5.15% third-quarter net profit exceeded estimates by a significant margin as the telecommunications equipment company continued to keep a tight rein on costs while seeing strong demand from operators racing to launch new fifth-generation networks.
     

    Ericsson's quarterly net profit ballooned to 2.75 billion Swedish kronor ($307.7 million) from a loss of SEK3.56 billion as sales rose 8.9% to SEK53.81 billion.

    Analysts polled by FactSet had expected a net profit of SEK630 million on sales of SEK50.28 billion.

    The gross margin rose to 36.5% from 26.9% while the operating margin grew to 6.0% from a negative margin of 7.4%.

    "We continue to invest in our competitive 5G-ready portfolio to enable our customers to efficiently migrate to 5G," said Chief Executive Borje Ekholm. "Strong sales were mainly driven by a continued high activity level primarily in North America."

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    Email of the day on technological innovation

    I continue to be amazed at the tremendous pace of technological advances in the EV and EV battery sector, including critical improvements in the time required to recharge, the longevity of the charge and the methods available to charge.  You may have already seen the following announcement as it is a few months old, and may well be aware of these developments. However, I have personally only just seen this article today, stating that China is in the process of building sections of a motorway that is electrically conductive and can recharge vehicles whilst continuing to drive at speeds up to 120km/hr (75mph). 

    http://smarthighways.net/china-to-build-a-motorway-that-charges-electric-cars-as-they-drive/

    Looking further into the process that enables such a development, apparently adding graphene to the concrete renders the road surface electrically conductive and enables it to recharge vehicles.  

    https://www.energymatters.com.au/renewable-news/electric-cars-charge-driving/

    There is also a pilot road currently being tested in Sweden that charges specially designed vehicles from an electrified track in the surface of the road.  I dare to venture that the latest technology being utilised in China would already render obsolete the cumbersome Swedish system!  

    https://www.energymatters.com.au/renewable-news/electric-cars-charge-driving/

    You often mention how the pace of technological developments influences markets and economies, however I am struggling to keep up with so many new developments in the various sectors. 

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    Chew on This. Cheap China Food Deliveries Won't Last

    This article by Shuli Ren for Bloomberg may be of interest to subscribers. Here is a section: 

    Underpinning Meituan’s success is what the company calls “abundant labor supply.” The cost of paying workers for each food order is about $1, or 20 percent of the expense incurred by delivery services in the U.S. An average order takes about 35 minutes, versus more than an hour in America.

    For that, China’s urban consumers can thank the army of rural migrants who have crowded into cities in search of work. A deep pool of more than 280 million such workers exists to service the needs of middle-class city dwellers, enabling fast e-commerce and offline-to-online businesses.

    But don’t take them for granted. Soon, there may be no cheap labor left in China’s large cities. 

    To fight pollution and traffic jams, mega-cities have started to restrict and even kick out migrant workers. Beijing plans to cap its population at 23 million in 2020, only 1.3 million more than its current size. Meanwhile, Shanghai has a target of 25 million by 2035, leaving room for only 800,000 newcomers. Meituan, which is battling Alibaba Group Holding Ltd. for food delivery customers, alone deploys more than half a million of delivery riders daily, over half of whom are based in the four tier-1 cities of Shanghai, Beijing, Shenzhen and Guangzhou.

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    Email of the day on the sustainability of electric vehicle batteries

    I find little information published about the lifespan of a battery pack. Today’s IC engines easily last for 10 years or 150,000 mi., frequently longer. I've seen no comparable information for battery packs or what the rate of decline in charge acceptance is over time. If that lifespan is considerably less than that of an IC engine, that price difference would have to be significant to be economic.

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    New Evidence of Hacked Supermicro Hardware Found in U.S. Telecom

    This article by Jordan Robertson and Michael Riley for Bloomberg may be of interest to subscribers. Here is a section:

    The more recent manipulation is different from the one described in the Bloomberg Businessweek report last week, but it shares key characteristics: They’re both designed to give attackers invisible access to data on a computer network in which the server is installed; and the alterations were found to have been made at the factory as the motherboard was being produced by a Supermicro subcontractor in China. 

    Based on his inspection of the device, Appleboum determined that the telecom company's server was modified at the factory where it was manufactured. He said that he was told by Western intelligence contacts that the device was made at a Supermicro subcontractor factory in Guangzhou, a port city in southeastern China. Guangzhou is 90 miles upstream from Shenzhen, dubbed the `Silicon Valley of Hardware,’ and home to giants such as Tencent Holdings Ltd. and Huawei Technologies Co. Ltd.

    The tampered hardware was found in a facility that had large numbers of Supermicro servers, and the telecommunication company's technicians couldn’t answer what kind of data was pulsing through the infected one, said Appleboum, who accompanied them for a visual inspection of the machine. It's not clear if the telecommunications company contacted the FBI about the discovery. An FBI spokeswoman declined to comment on whether it was aware of the finding.

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    China Used Tiny Chip in Hack That Infiltrated U.S. Companies

    This article by Jordan Robertson and Michael Riley for Bloomberg may be of interest to subscribers. Here is a section:

    A notable exception was AWS’s data centers inside China, which were filled with Supermicro-built servers, according to two people with knowledge of AWS’s operations there. Mindful of the Elemental findings, Amazon’s security team conducted its own investigation into AWS’s Beijing facilities and found altered motherboards there as well, including more sophisticated designs than they’d previously encountered. In one case, the malicious chips were thin enough that they’d been embedded between the layers of fiberglass onto which the other components were attached, according to one person who saw pictures of the chips. That generation of chips was smaller than a sharpened pencil tip, the person says. (Amazon denies that AWS knew of servers found in China containing malicious chips.)

    And

    One Friday in late September 2015, President Barack Obama and Chinese President Xi Jinping appeared together at the White House for an hourlong press conference headlined by a landmark deal on cybersecurity. After months of negotiations, the U.S. had extracted from China a grand promise: It would no longer support the theft by hackers of U.S. intellectual property to benefit Chinese companies. Left out of those pronouncements, according to a person familiar with discussions among senior officials across the U.S. government, was the White House’s deep concern that China was willing to offer this concession because it was already developing far more advanced and surreptitious forms of hacking founded on its near monopoly of the technology supply chain.

    In the weeks after the agreement was announced, the U.S. government quietly raised the alarm with several dozen tech executives and investors at a small, invite-only meeting in McLean, Va., organized by the Pentagon. According to someone who was present, Defense Department officials briefed the technologists on a recent attack and asked them to think about creating commercial products that could detect hardware implants. Attendees weren’t told the name of the hardware maker involved, but it was clear to at least some in the room that it was Supermicro, the person says.

    The problem under discussion wasn’t just technological. It spoke to decisions made decades ago to send advanced production work to Southeast Asia. In the intervening years, low-cost Chinese manufacturing had come to underpin the business models of many of America’s largest technology companies. Early on, Apple, for instance, made many of its most sophisticated electronics domestically. Then in 1992, it closed a state-of-the-art plant for motherboard and computer assembly in Fremont, Calif., and sent much of that work overseas.

    Over the decades, the security of the supply chain became an article of faith despite repeated warnings by Western officials. A belief formed that China was unlikely to jeopardize its position as workshop to the world by letting its spies meddle in its factories. That left the decision about where to build commercial systems resting largely on where capacity was greatest and cheapest. “You end up with a classic Satan’s bargain,” one former U.S. official says. “You can have less supply than you want and guarantee it’s secure, or you can have the supply you need, but there will be risk. Every organization has accepted the second proposition.”
     

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