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Penrose Was Right

Roger Penrose has long suspected that quantum gravity would not be computable. Looks like he is right.

No, not financial. But huge. Huuuuge.

Self-Driving Cars

Probably the most dramatic innovation in transportation since 1885 (the first car, Daimler-Benz Patent Motor Car, Model 1) is the self-driving car.

But what does self-driving really mean? These are the SAE levels:

Level 0: Automated system issues warnings but has no vehicle control.

Level 1 (”hands on”): Driver and automated system shares control over the vehicle. An example would be Adaptive Cruise Control (ACC) where the driver controls steering and the automated system controls speed. Using Parking Assistance, steering is automated while speed is manual. The driver must be ready to retake full control at any time. Lane Keeping Assistance (LKA) Type II is a further example of level 1 self driving.

Level 2 (”hands off”): The automated system takes full control of the vehicle (accelerating, braking, and steering). The driver must monitor the driving and be prepared to immediately intervene at any time if the automated system fails to respond properly. The shorthand ”hands off” is not meant to be taken literally. In fact, contact between hand and wheel is often mandatory during SAE 2 driving, to confirm that the driver is ready to intervene.

Level 3 (”eyes off”): The driver can safely turn their attention away from the driving tasks, e.g. the driver can text or watch a movie. The vehicle will handle situations that call for an immediate response, like emergency braking. The driver must still be prepared to intervene within some limited time, specified by the manufacturer, when called upon by the vehicle to do so.

Level 4 (”mind off”): As level 3, but no driver attention is ever required for safety, i.e. the driver may safely go to sleep or leave the driver’s seat. Self driving is supported only in limited areas (geofenced) or under special circumstances, like traffic jams. Outside of these areas or circumstances, the vehicle must be able to safely abort the trip, i.e. park the car, if the driver does not retake control.

Level 5 (”wheel optional”): No human intervention is required. An example would be a robot taxi

Levels 0 and 1 are widely available today. Tesla is at level 2. The new Audi A8 is available with level 3 (up to 37 mph.). It appears that level 3 will be widely available in 2018-2019 when level 4 will be on a few models. By 2020, level 5 will be available.

Here is the 2017 CES presentation from Toyota that covers this issue. Their concept is 9 minutes in, discussion of safety and levels 19 minutes or so. It even explains why the Audi is limited to 37 mph.

This is a revolution, folks, that will change all our lives. Pay attention.

Back Of The Envelope

I saw this post on zero hedge. It has obvious weaknesses – it confuses flows and levels, and ignores the change in private sector debt which is no different than public debt.

So with the help of FRED, I did a few numbers on the period 1/1/1997 to 1/1/2017. For that period, the increase in debt level contributed about 26% of the increase in GDP. I included consumer debt, corporate debt and government debt. I simplified to a linear increase in GDP. Bottom line, if debt had held steady, GDP would be reduced by about 15%.

All this says is yup, government deficit spending and easy credit pump up the economy. Until the defaults start, anyway.

Better Than Sex?

“A bull market is like sex. It feels best just before it ends.” – Warren Buffett

“When things are going right, we all need a 26-year-old. There’s nothing better than a 26-year-old in a great bull market especially in a bubble. They’re fearless. They don’t know. It will never end. They will tell you why it will never end. They know that it cannot end and will never end. So in the bull market, you’ve got to have a 26-year-old. But when they end you don’t want the 26-year-old around… they make a lot of money. They don’t know why they made money. So they don’t know why they lose money. They don’t know what happened. -Jim Rogers on Realvision

Obamacare

It appears that Obamacare reform is now dead. No surprise, the insurance industry spent huge sums to get it passed in the first place. It is fair to assume that they are strategically spending more to ensure that their investment is not wasted. There is no such thing as principle in the US legislature, it is all about the money.

The only question now is whether or not Trump will continue to subsidize it by diverting the profits from Fannie and Freddie to the insurers.

Steppin’ On The VIX

I’ve been trying to come up with new lyrics for “Puttin’ on the Ritz,” starting with a new chorus – “Steppin’ on the VIX.” So far, abject fail. I guess I’m not a poet or songwriter.

But this market is all about selling volatility. The trade has worked well for a long time. But it has built up a huge short position, figures in excess of $40 billion are being bandied about. I hear that this is mostly retail interest at this point. The pros are well aware that there are two sides to every trade, and somebody is on the long side, big time. Don’t forget the crazy fat kid.

Internet Advertising

I’m seeing an increasing number of companies (e.g. Proctor and Gamble, Restoration Hardware, Uber… ) complaining publicly that they are receiving little or no value for their internet advertising spending. It is trite to say that half of every advertising dollar is wasted, you just don’t know which half. But in these cases, companies claim to be reducing their internet ad spending without significant negative impacts. Reasons given include poor placement and fraud, although these seem very hard to quantify.

Given that a big chunk of the market cap out there comes from highly valued internet advertising companies (Google, Facebook, etc.) I think one should “watch this space.” Closely. Very closely.

Quantitative Tightening

The Fed announced that it intends to normalize its balance sheet at the rate of $10 billion per month. Will only take a little less than 40 years.

Stocks flat, bonds down. VIX 9.9. Seriously?

Nothing Unusual Here

Zero hedge of course. Just for the record.