Wealth destroyers

Black boxes, Artificial Intelligence and FinTech - likely a deadly combination that is going to destroy a lot of wealth. We have seen this before - fresh graduates from business schools coupled with mathematicians and physicists, descending on Wall Street to make the world go around in the opposite direction. As they appear on TV after hours - mad and fast - to confuse and pillage small money, ascertaining where every stock is going and even the market, there are 20 million fat fingers across the world chasing the illusion. 

The theory underlying financial markets has been robust in spite of the recent confusion about "behavioral economics." New information moves markets and unless one has insider information, it is impossible to create alpha from fundamental or technical analyses. A lot of careers are made and destroyed on this false idea.  For some of us, theory still matters and it can be shown without any empirical uncertainty that alpha is a white elephant. If an adviser is demonstrating consistent alpha, one has to wonder where the information is coming from. The SEC has gotten a lot more sophisticated lately but a simple heuristic of alpha consistency will tell you that there is something wrong.

Business schools need to rethink their focus. Some even have classes in "trading," and that idea is utterly inconsistent with everything we know. In the presence of uncertainty, it is easy to make returns and lose them quickly. In spite of all the academic literature behind this, not many involved in "money management," really talk about alpha (only returns). Granted, a single factor model is woefully inadequate to measure risk but not considering risk in your returns, like the TV moguls do, is a prescription for disaster. The fact that conventional finance education and even the high-end certifications do not prepare the professionals adequately is symptomatic of education chasing trends and not sticking with what is known.

The financial industry appears to be dominated by engineers and accountants, the former unaware of economics and the later unaware of the fact that we have computers now to count money. Adding mathematicians and physicists on top of this already deadly combination can only result in tears. 

Oumuamua

Recent transit of cigar shaped Oumuamua that raised hopes of galactic panspermia (1) is a double edged sword. Hitching rides on stable objects over millennia appears plausible for robust life but the implications of such transference could be catastrophic for the blue planet. It is not the green men and women we have to worry about but deadly single cell organisms from another galaxy. If the space agency ever stops taking shots at everything near in an effort to prove life exists elsewhere, they may have enough resources to explore the extra-solar bodies that seem to frequent this quiet corner of the Milky way. There they may indeed find life but possibly of a different kind. The half a dozen plausible building blocks including Carbon and Silicon narrow the shape of life and that should allow profitable exploration.

Science may need to borrow from philosophy as it attempts to prove extra-terrestrial life. The fundamental question remains to be what qualifies as life. Even in the narrow context of Earth, we find entities that show dual properties of life and non-life, as we define it. It appears to indicate that life is a spectrum with entities spanning the full scope. The closer to non-life, the more robust they appear, possibly pointing to efficient panspermia of materials that are close to life but have not yet crossed the threshold. So, near life materials could be freeze-dried and transported over time and space and they could show biological activity with conditions that allow such transformation. The heuristics used by the agency to find life, such as the presence of water, are archaic and it is time to step out of the rooms without windows, surrounded by steel and electronics, and think clearly. It is likely that the most dominant life form in the universe is something that can easily transcend the life/non-life threshold at will and that provides infinite possibilities for spreading themselves. The ability of an organism to freeze-dry itself should be considered dominant for transference and the environment in the blue planet is not conducive to enhancing robustness.

A sitting duck in the meteor shooting gallery, the Earth should be counting down to the unavoidable catastrophic event. If that happens, it does not look like there is anything that could hitch a long ride to the next spot.


(1) http://www.sciencemag.org/news/2018/10/cometlike-objects-could-be-spreading-life-star-star-throughout-milky-way