US Presidential election: if you dont have anything to say then start singing

Why are exit polls so accurate while pre-voting intention polls largely rubbish?  The UK election showed this stark reality where opinion polls leading up to the election showed a close race whereas the exit poll accurately measured a Labour Party landslide victory with an 80 seat majority (in actuality the majority came in at 82).  […]

Token2049 is soooo this decade

Token2049 is a crypto initiative that has stormed Singapore and Dubai.  As its name suggests, the event brings together the crypto community to muse over the technology and position of digital assets 25 years from now.  Some observations,  Despite the 25 year future prediction horizon, the events seem very much rooted in the present and […]

The Fed…the UK, Trump and Biden

The US Federal Reserve and Interest Rates… After 2 decades with US interest rates way below their long-term target (the ‘neutral policy position’ is about 4% for cash), the Federal Reserve must be feeling comfortable.  Yetserday’s CPI print is the first negative month-on-month figure, a few more of which might put the inflation bear to […]

Speed is not the solution to Generative AI

What is it about human thought and creativity that cannot be captured by a computer? I have always said that humans are smart but slow, while computers are dumb but fast. A human plus a computer is very powerful. Generative AI is all about making computers think for themselves. Despite the doomsday warnings and related […]

Elon “MAC” Musk

One of the profound results from Neo-Classical price theory is that, in long run equilibrium, production costs tend will equal their Minimum Average Cost (MAC).  Profit maximising firms compete away any profits they may earn so that the most cost efficient solution is obtained.  In long-run equilibrium,  the production cost curve sits neatly at the point where the product’s price just matches  Minimum Average Cost and Marginal Cost simultaneously.  This school boy result, P=MC=MAC, masks the complexity of the competitive market dynamic that drives producers to adopt the latest technologies, allocate resources efficiently and at the same time make zero profits.  How is this optimum and equilibrium achieved?

I am reading Elon Musk’s biography and it strikes me that his gift is being able to cut costs to reach the MAC for producing cars, spacecraft, solar roofs or any other product that he makes.  The method he adopts has 2 steps.  First, cut out processes that are beyond the necessary physics underlying the product being produced.  Second, if you cut too far you should add back features that are deemed necessary.  Importantly, in this second step, if you don’t add back anything then you haven’t cut far enough.

The examples in his production of rockets are exemplary.  Musk elects to use stainless steel in his spacecraft, as opposed to expensive metal allows, because it is cheap.  His cars have a single die-cast chassis for the same reason. Whereas he had set out to replace all humans with robots at Tesla, he added back some manual features to cut delay in the production line.  Being the minimum cost producer in the industry offers an enormous advantage for securing long-term funding as well.

Viewed in this way, Elon Musk is neither a visionary technologist nor a serial innovator.  He is a cost cutter. He has a knack for identifying bloated industries that operate on favourable economic terms (e.g. the rocket ship industry was incentivised to produce on a cost + 10% contract basis meaning higher costs implied higher profits!), which he streamlines (say, by reusing the rockets used for propulsion).  Understanding the physics of the product being built, and constructing just to that level is his skill.  

There is a video doing the rounds that criticizes Tesla for just using cameras on their driverless vehicles, dumping LIDAR and RADAR as additional, supporting systems.  This clearly cuts costs and increases collision risks but there is no reason that the risk of a collision should be reduced to zero in equilibrium.  This is difficult for regulators to comprehend but Elon is fine with it.

AI: A statistics package in the hands of monkeys

There are two ways to approach an empirical question. 1. Formulate an hypothesis based on some physical, structural or behavioural model.  Test the hypothesis using a relevant dataset.  Interpret the results relative to the model predictions. 2. Dump a bunch of data into a bucket, stir and implement the correlations that appear. I have been […]

Sovereign reserves and the USD

Many market observers have noted that holdings of US Government bonds by Sovereign Reserves Managers (Central Banks and Sovereign Wealth Funds) has declined in recent years whereas the USD remains well bid.  These commentators view this as contradictory and that the long term implication of lower Treasury bond holdings should be a weaker dollar. This […]

Half-time for ChatGPT’s 15 minutes of fame

I was drinking with an academic friend last week and the discussion topic moved to ChatGPT.  Like many of us who have played with the software, we both marvelled at the rate with which the application can spew out coherent prose.  The main problem is that much of it is bullshit. Fabrication and embellishment is […]

Credit Suisse was no big threat

Why is everyone else nodding and I am shaking my head at the forced Credit Suisse rescue/bankruptcy/insolvency/systemic-threat/crisis?  Those nodding agree that it was a prudent action by the Swiss regulator.  My view is that there is nothing systemic that the market hasn’t already dealt with. Walk down the street and ask people, in every city […]

Silicon Voodoo Bank and the managed funds industry

So what is the big deal with the failure of SVB?  The story goes that SVB’s depositor base was a bunch of tech startups.  The asset’s went down in price, chewing up the Bank’s capital and then some.  This triggered a classic ‘bank run’ where depositors tried to withdraw their deposits at a price that […]