Macro Themes for 2013 (part I)

1. Man vs. Machine
• Productivity gains will outstrip pace of consumption – technology such as automation, robotics and 3D printing will destroy jobs faster than it create jobs
• Up to 50 million current jobs could be automated in the future (and thus destroyed)
• How many jobs will be created through this automation? The answer is however many AI programmers you need (probably far less than 50 million)
• Firm's labor demand will be for a few skilled workers rather than many unskilled workers
• Hiring - firms are spending on capex instead of hiring; 75% of US manufacturing firms already employ <20 workers
2. US Manufacturing Renaissance
• Localization, or Anti-Globalization
• Production is being re-shored to be closer to the huge US consumer market and take advantage of local logistics
• EM (emerging market) are becoming less competitive
• EM currencies are appreciating such as CNY (Chinese Yuan)
• China could enter the "middle income trap"
• Overseas transportation are too high due to energy prices, incentivizing firms to repatriate
• Underinvestment and low capex spending in US means pent-up demand
• Theme 1 - automation and robotics override low labor costs
3. US Energy Boom
• EIA forecasts
• US will become energy independent by 2020
• Largest natural gas producer by 2015, surpassing Russia
• Oil output poised to surpass Saudi Arabia’s by 2019
• Consumption - 87% will be from domestic sources of energy by 2020, up from 79% today 
• Imports - 13% of consumption by 2020, will be primarily supplied by Canada & Mexico, increasing from 36% of imports today to 62% by 2020.
• Competitiveness
• EU suffers from expensive gas contracts with Russia
• Latam has moved plants to US due to low natural gas and electricity prices
• Electricity - prices are 50% cheaper in the US than in Europe
• Roughly 30% of US electricity is generated by burning cheap domestic natural gas
4. DM (Developed Markets) Aging Demographics
• Population - baby boomers outnumber millenials due to decreasing fertility rates
• Labor - baby boomers are retiring later due to recession, crowding out young from workforce
• Gov't debt - millenials inherit high gov't debt caused by spending on entitlements towards baby boomers
• Other - high student debt, tight credit, skills mismatch, high job turnover
• "Peter Pan" generation - millenials reliant on parents, delay adulthood, live at home
5. DM Big Gov't Socialism
• Political sentiment will lean towards fairness and equality
• Theme 1 - high unemployment and inequality will be balanced by redistribution through increased taxes and spending
• Theme 4 - baby boomers dominate gov't and are biased towards increasing gov't healthcare, pensions, social security, etc.
6. DM Central Bank Printing
• Currencies - race to the bottom means depreciation
• Inflation - will stay low due to tight lending and low velocity
• Financial repression - captive investors ensure low rates
7. "Peak Car"
• Urbanization, high fuel prices, increasing youth insurance premiums
• Car-sharing schemes - 1 rental equals 15 owned cars; e.g. 700k Zipcar members share only 9k cars
• Theme 4 - tight credit depresses auto-ownership

Random Thoughts: Desktop Efficiency for Windows

Customize your desktop with these free tools to become most efficient

1. autohotkey
2. launchy
3. divvy win-split-revolution (divvy is not free)
4. .bat files (for windows)

These programs allow you to avoid having to use the mouse/move your hand position and to be able to bring up files/foldes or run commands in less keystrokes)

Autohotkey: map keystrokes to different keystrokes or call different programs (eg: Ctrl+Shift+N to call new word doc). One huge functionality is mapping keystrokes to navigation commands so that you don't need to move your hand away from the keyboard. eg: vi (an editor) maps H -> left,  J -> down, K -> up, and L -> right when it is in navigation  mode:

Now you can have that across your whole desktop.

Launchy: start programs/open folders by typing in their names from launchy (brought up by alt-space) instead of searching for it in the start menu. 

Macs already have a similar program included

Divvy Win-split: customized tiling of windows. for example, when I am at my office, my middle screen usually looks like this: web browser taking up ~2/3 width and some space at the bottom (because of the bb launchpad widget)

Divvy Win-split lets me automatically size the browser this way. I wish there was a way to size multiple tabs at once though (eg: put 4 windows into the 4 quarters of the screen)- but that's going to be really complicated (because computer doesn't know what to choose after the active screen)

.bat files: requires some minimal understanding of commandline. Basically write small scripts to let you do whatever you want. You can then use launchy/autohotkey to call these scripts.

Random Thoughts: New Trends

Want to think about new forms of media made possible by technology, and whether I am fully experiencing/taking advantage of these new improvements

Partially inspired by this ted talk about new forms for comics (eg: infinite canvas).

Thoughts:

1. Much easier referencing + dynamic hide/show functionality --> overview type documents are much more effective and can aesthetically pleasing. 
• Imagine a spark notes study guide. Previously publisher needed to cram everything you need to know into the book, which inevitably leads to waste of words/space. eg: There is some stuff you already know so you skip over it, and the whole thing gets bulky. Now, publishers can just list concepts that you need to know. if someone doesn't know it/want to review, they can just click into it. Alternatively, you could select/hover over the text to get details,  or click a button to show/hide details. 
• Imagine this post, where you first see the first sentence of each bullet pt (a summary of the whole paragraph) instead of the whole paragraph and can choose to see more if interested. Better than just seeing this huge unappetizing blob of text, no? This is maybe something that blogging services can improve on. 
• Alternatively, one way this has been taken advantage of is linking. What we are doing here- introducing concepts and linking to its descriptions/examples for someone who wants to dig deeper. One potential problem however, is that if you link to someone else's stuff, they might take it down, and others won't be able to access it anymore. There should be software that allows someone to say preserve your own post and also any pages that it directly links to.
• A similar idea is that contextual information should become more accessible. For example, if I went to a museum, maybe I want to know that there was a period when Picasso painted in blue. Then, when I see this blue painting of his when I am there, I will know, "Aha, this was during his blue period", and not this. Wouldn't it be cool if the museum could just publish some contextual information for each exhibit so the non-art-history majors can read the context beforehand? (or even on their smart phones as they are on site)
2. Message frequency. Crowd sourcing based news sources have been around. eg: wiki and yelp. However, the ability to email/msg/tweet..etc at the current frequency is actually pretty new, which means:
• Nowadays, most current news is often found on twitter. I want to start to build out a news network using tweetdeck (has popup notifications for customizable tweets. eg: by author, keyword etc) to supplement conventional news sources.
• Live blogging. should make an automatic live blog as own diary
3. Cloud computation: can do super computationally intensive things from your phone (because your phone isn't actually doing it). This is similar to having a secretary you can call who can then lookup xyz for you (in the good old days). Instead, you use anything with internet connection to access your server and the server does computationally intensive things there then the results back to you.

So this brings me to my final thought. This part is inspired by Cassandra.

(I want to make) one app to rule them all- aggregating news sources and combining functionality.

eg: if you read from 100 different blogs, you want an rss reader that aggregates that for you. But that is just the first level. If you read these blogs, these emails, watch these new youtube videos and browse bloomberg at this time, then you could  have something that scans for particular emails, accesses rss feed, and pull articles from bloomberg and delivers to you all at once for your morning reading. Similarly, customize your evening readings, monthly readings etc. And this is just aggregating news sources. You also want to combine different functions eg:

1. Databasing/record keeping 
• Note taking/comments, hash tags for easy retrieval later, also see live blogging
• If pt (1) becomes more popular/developed, then I think there are much better options for databasing the information.
2. Learning (from now on if x happens I want to do y as the correct response. can the computer remind me or do this for me?)
3. Automation 
• autofilter news sources, emails. On a sidenote, autofiltering/personalization without you knowing it is really scary.
• autoprocessing, eg: supplying useful statistics (this is your 5th email correspondence with this contact. last time you didn't respond to his question even though you flagged it as something to followup on)
• supply default responses- wouldn't you want to be able to be able to select between "haha", "yeah", "lolol", etc for your text responses instead of having to type that out?

However, one interesting observation is that while creating/using this one app that aggregates and combines functionality may be an "optimal" choice, it is not going to be a widely adopted in real life. Something complicated/personalized is great if you can understand it, and it may get a cult following, but it will never get widespread following. Kinda reversed tragedy of the commons

Sports?

I once won an award for a website that I created with a team that focused on unusual Olympic sports (woah!).  Here are some more unusual sports:

• Kyz Kuu - "Kyz kuu or kyz kuumai, literally "girl chasing", is a traditional sport among the Azerbaijanis, Kazakhs and Kyrgyz."
• Buzkashi - "Buzkashi is often compared to polo. Both games are played between people on horseback, both involve propelling an object toward a goal, and both get fairly rough. However, polo is played with a ball, and buzkashi is played with a headless goat carcass."

Betting/trading strategies- Sizing

One of the mysteries facing finance professionals is how to reconcile the quantitative with the qualitative/discretionary. I actually think most gambling professionals do this quite well (eg. bet sizing on poker)- this may be because the risk/reward is much more well-defined (vs investing). I would like to propose a system to conduct position sizing that integrates the qualitative with the quantitative.


this is dependent on 3 things. 

(1) how risky the thing is on a daily basis (ie. can go up/down by $1 vs $100)
(2) how much conviction you have (ie. i would do something like, 3 conviction levels, lowest = believe can get 5% Return on Risk, mid = 10%, high = 20%)
(3) what is your intended time horizon (or alternative way to say this is take profit/stop loss level)

Then (4) plug into kelly's criterion and take 1/2 kelly as position size

So taking aapl as an example:
(1) daily range is say $15
(2) say you have high conviction (ie. you believe you can make $0.2 vs every $1 you risk, as an average of many bets with this level of conviction. this could mean you make $1.2 half the time vs lose $1 half the time, or that 60% of the time you make $1, and 40% of time you lose $1). I think these conviction levels make sense. 5% = any lower and you should definitely just put it in cash/ST bonds. 20% = anything higher and this is a once in a lifetime/decade type trade, where you really just plunge as much as possible (and sizing is to make sure you can maintain exposure in face of MTM losses)
(3) let's say your intended time horizon is 1yr. then yearly vol is $15 *sqrt(252) ~= 240. this sounds about right (eg; this yr aapl range was from 380-700) 
(4) so every share of aapl (550), you may make +290 (240*1.2) vs lose -240. kelly's = EV/win = 50/290 = 0.17. which means that you should risk 17% of your portfolio.
taking half kelly to be conservative, that is 8.5% of portfolio. which means amt of AAPL shares to buy = your total portfolio value * 8.5% / 240

so eg: on 1mil portfolio, you should buy 355 shares of aapl (195k) if you intended to hold it for 1yr+ and have medium conviction on it. this is about 20% of your portfolio, which is very aggressive sizing already. for long/short equity, anything 10%+ would be considered concentrated. the reason why it is high here is because you have super high conviction assumptions. 


note that
(1) we havn't looked at portfolio correlation yet, which would involve dialing down sizing if you have similar exposures.
(2) this # that we got is the MAX risk you should ever take. ie. anything more is theoretically bad for you (ie. your LT returns will be lower than if you just took less risk). so depending on how risk averse you are, you should be sizing significantly less than kelly. (eg: you could always size 1/4 kelly)

(3) can play around with the skew/kurtosis of returns to get a different sizing. In fact, all the steps above are actually asking you to describe a probability distribution of your return for this trade. (1) is asking for stdev, (2) is asking for mean, (3) is looking at how returns scale with time (is there autocorrelation?) which is also going to be related to kurtosis in this case (+ve autocorrelation = higher kurtosis compared to standard assumptions when scaled up with time) (4) is asking about the skew (are you 50% to win 1.2 and 50% to lose $1, or are you 60% to make $1 and 40% to lose $1)