After writing “Here’s The Perfect Metaphor For Recent Fed Policy,” I had to pick up a copy of The Dao of Capital. Mark Spitznagel just has a unique way of looking at the markets that really resonates with me.

One thing that really jumped out at me while reading it was Spitznagel’s research regarding Tobin’s Q, (though he calls it, “The Misesian Stationarity Index”). It struck me for two reasons. First, I haven’t seen much research like this elsewhere and second, the opinions I have seen regarding it are all of a dismissive nature.

Just Google “Tobin’s Q” and you’ll find all sorts of pieces proclaiming, ‘Don’t worry about Tobin’s Q,’ and, ‘Tobin’s Q is not an effective way to time the market,’ etc. Actually, both of these sentiments are incorrect.

Spitznagel’s research published in the book shows investors should be worried about the extreme level of Tobin’s Q today for the simple fact that is a very good way to time the market.

But before I get into that I should probably explain what the ratio is. It’s pretty simple, really; the Q-Ratio is just the total value of the stock market (numerator) relative to the total net worth of the companies that comprise it (denominator). The data is provided quarterly by the Fed.

When the Q-Ratio is very low, stocks, as a group, are inexpensive relative to their replacement cost. Conversely, when the ratio is very high, stocks are relatively expensive in this regard.

Critics have suggested this way of thinking about the stock market is outdated. In other words, “this time is different.” And even if they admit that comparing equity valuations to net worth has some value they insist that value does not include timing the market.

However, Spitznagel shows that when you separate the historical record of the ratio into quartiles and compare forward returns to the risk-free rate, stocks have performed very poorly after very high q-ratio readings. They also performed very well after very low q-ratio readings. Once again, it turns out that, “the price you pay determines your rate of return,” is validated by the data.

Additionally, when the Q-Ratio has been very high, as it is today, the size of the subsequent drawdowns were much larger than those following low readings in the ratio. In other words, when stocks become largely very expensive, as they are today (see the chart at the top of this post) we should come to expect large losses.

So if you care about forward returns relative to potential drawdowns, the Q-Ratio is something you probably want to pay very close attention to. Clearly, it has great value in determining this reward-to-risk ratio that is critical to the investment process. And, like other measures, the Q-Ratio is currently suggesting investors are taking a great deal of risk for very little in the way of potential reward.

How the Q-Ratio comes to be so skewed is different topic altogether and something you’ll learn in reading the book. But here’s a hint. And if you need further incentive to pick up a copy, Spitznagel also includes a couple of simple strategies built around the Q-Ratio that handily beat a buy-and-hold approach.

Courtesy of TheFelderReport

Investors, advertisers, and business leaders around the world are still trying to understand millennials, the generational group that will shape commerce for the foreseeable future. In the past, that’s why we’ve looked at millennial investing and banking preferences, their favorite brands, and even what real estate professionals need to understand about the generation.

Today’s infographic from Adweek is of particular interest, because it focuses on a very particular subset of millennials. The data in the graphic is from a survey of nearly 500 nominees for the Forbes 30 Under 30 list. While the subject range is broad, it’s a good snapshot of how some of the brightest millennials in business think.

There’s an ongoing joke in the startup world about how aspiring founders pitch their new ventures. Every startup idea is reduced to an “Uber for _____” or a “Tinder for _______”, where some niche untapped market is inserted in the blank space.

Much to the chagrin of many venture capitalists, this formulaic phraseology is so pervasive that it actually may hinder the creation of any actual original ideas. That’s because entrepreneurs are expected to be able to communicate their brilliant startup idea in just a few words, and it’s easier to go this route than to try and explain something complex and unique.

That said, if you do want to venture down this path, there are a few semi-successful companies on the following list. You may have even heard of some of them, such as Dollar Beard Club, TaskRabbit, or The League.

There’s also a few available slots, if you don’t mind running with an idea like the “Tinder for Boats” or the “Airbnb for Pizza”.

The global economy has regained some composure, according to asset management firm Schroders. In their view, markets have regained a risk appetite following action by central banks, the normalization of commodity prices, and a lack of materialization for tail risks such as a U.S. recession or a Chinese hard-landing:

While there's been so much 'worrying' over the slowdown in China, the Fed possibly raising rates and energy defaults with the weight on banks, it's still a good idea to remember a stock markets structure; or the steps it takes before a bear market takes place.  The basic strategy is to pay close attention during the accumulation and distribution phases as the market shifts from buyers to sellers, or vice versa. Then, by recognizing the markup and decline phases, an investor can be appropriately long or short to make solid returns.  Click image to enlarge.

Courtesy of the good folks at VisualCapitalist

The Bloomberg US Financial Conditions Index and the S&P 500 tend to move in pretty close unison. In March, however, they started to move apart in a manner similar to late last year, before the market took a nosedive. Once again, either financial conditions improve or the stock market corrects.

Source: Bloomberg

Shown below we see a similar wide divergence when looking at credit spreads (inverted in red) compared to the S&P 500 (in black). When financial conditions are healthy, credit spreads narrow since investors require less compensation for the risk of holding non-government securities. As financial conditions deteriorate and default risks increase, credit spreads widen. The credit markets were confirming the message of the stock market up until mid-2014 and have continued to diverge ever since. Either credit spreads narrow or the stock market adjusts.

Source: FinancialSense

Another one that says what could cause a collapse; of course they never say "when" it will happen.  Another reason to remain cautious and take winners where you can.

According to CNBC, the S&P 500 is close to its record high as earnings season heats up, but one of the major drivers of the market's advance - stock buybacks - looks to be sagging.

U.S. companies announced about $182 billion in buybacks in the first quarter, according to Birinyi Associates research, putting buybacks on pace for their weakest year since 2012. Strategists link this, in part, to falling cash flow, a trend that is expected to worsen in coming quarters.

First-quarter earnings per share are expected to fall 7.8 percent, but more importantly for the outlook for buybacks, revenues are set for a fifth consecutive quarter of decline. Thomson Reuters data forecasts a 1.1 percent revenue drop.

Cash flow is a better indicator of buybacks prospects than earnings, as per-share earnings can be managed through cost-cutting such as asset sales and cutbacks. Weak free cash flow, on the other hand, cannot be papered over. The expectation is that buybacks, which have become part of the corporate finance routine in recent years, could slip in coming quarters as a result.

"More companies are decreasing their cash flow from operations, which does not really lend itself to repurchases," said Abhra Banerji, director of quantitative research at Evercore ISI. "They may honor existing commitments that they have made - but it is unlikely they will issue new ones."

Banerji notes that the share of S&P 500 companies increasing cash flow has slipped from about 55 percent in mid-2014 to about 49 percent now.

Aggregate cash flow for S&P 500 companies is estimated to have increased by almost 16 percent in the first quarter compared to a year earlier, but is seen flat in the second quarter and falling markedly in the second half of the year according to a data analysis by David Aurelio, research analyst for Thomson Reuters I/B/E/S. (Graphic to the right)

Even with the increase in the first quarter, the number of buyback announcements fell to 58, compared with an average of 76 in the first quarter of the past three years, according to Evercore.

For example, ExxonMobil Corp, which has spent more than $200 billion in buybacks in the last decade, more than any other company, chose to refrain from buybacks altogether in the first quarter. The largest U.S. energy company said then that it would "evaluate" the buyback program each quarter. It reports results on April 29.

LOOMING SQUEEZE

Industries expected to feel the biggest free cash flow squeeze in the second quarter include energy, consumer services companies, such as McDonald's ; the capital goods sector with big share repurchasers like Caterpillar and Boeing , and diversified financial companies such as Goldman Sachs, according to Thomson Reuters data.

Those companies rank in the top 20 percent of share repurchasers in the last decade. In the last two years, spending on buybacks and dividends surpassed overall companies' net income for the first time outside of a recession, according to a Thomson Reuters analysis.

Now, companies mostly associated with buybacks, particularly those with high ratios of buybacks to their market value, could struggle as they see cash flow sink.

Four of the top 10 members of the S&P Buyback Index - Michael Kors, Emerson Electric, Parker-Hannifin and Scripps Networks are expected to report falling per-share cash flow in the first quarter of 2016, according to Thomson Reuters I/B/E/S data.

This buyback index, long an outperformer against the S&P, has lagged the broader average since early last year. The index is down 4.7 percent from the beginning of 2015 until April 14 of this year while the S&P is up 1.4 percent in that time.

Michael Kors, an apparel company, is among the worst performers, down 30 percent in that time.

Buybacks also help company earnings look better than the weakened revenue figures suggest, as the lowered share count boosts earnings per share. If repurchases fail to keep up with the recent pace, the effect of declining earnings on valuations could be magnified.

"It makes a declining fundamentals picture perhaps a little bit worse that it would be," said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

Cash has, however, not been the only fuel for the buyback frenzy over the past six years. Many companies have taken advantage of historic low interest rates to borrow and use the proceeds to purchase their own stock. There has been nearly $7 billion in U.S. corporate bond issuance in the last five years, according to Securities Industry and Financial Markets Association (SIFMA) data.

"The pace of net buybacks accelerated in the last two quarters of last year even as earnings declined," said Brian Reynolds, chief market strategist at New Albion Partners in New York. He added that the ongoing boom in bond sales means more companies will "start leveraging their balance sheets for more buybacks," that is, selling more debt to pay for their shares.

What might affect this calculus is an upward drift in interest rates. If the Federal Reserve continues to raise interest rates in response to jobs growth and a perceived stronger economy, long-dated bond yields will also rise, increasing the cost for companies who want to buy back shares. That, in addition to weak cash flow figures, could prove a double-whammy for the stock market.

Of course, no where does it say how long this can continue but it's important to be aware. No, it can't go on forever.

We are now entering earnings season once again. Pre-announcements have been the second-worst seen over the past decade.

This has analysts lowering estimates. In fact, they’ve been lowered so far quarterly earnings now look to fall all the way back to 2009 levels.

For the trailing twelve months earnings are now back to 2011 levels…

…even while stocks remain 75% above their own levels from back then. Taken together you get a price-to-earnings ratio of 24, higher than any other time over the past several years.

It should go without saying that extreme valuations and falling earnings are not a bullish recipe for stocks.

So the fundamentals are not supportive of higher prices. What then has been driving them higher in recent weeks?

And the greater fools are none other than the companies themselves…

…for now. If earnings don’t turn around soon (and corporate spreads narrow), it’s going to be hard to maintain the current pace of buyback activity.

Just by glancing at the chart above it’s easy to see that companies have been the greatest fools of recent market cycles, expanding their buyback activity at the highest valuations and reducing them during the most attractive ones, hardly a legitimate theory of investment value. This cycle appears to be no different.

Courtesy of Felder

Presented without commentary.

A friend I haven’t heard from in many years since he left the USA wrote me. He closed the letter in an unusual way, saying:

PS — USA has gone completely bonkers these days? or what the heck is going on over there? would love to pick your mind over a glass of wine. someday!

I’m not intending on writing on politics as a regular habit at Aleph Blog, and most of what I am going to say is economics-related, so please bear with me.  Hopefully this will get it out of my system.

To my friend,

There are a lot of frustrated people in the US.  Though you’ve been gone a long time, you used to know me pretty well; after all, I trained you on economic matters.

Let me give a list of reasons why I think people are frustrated, then explain how that affects their political calculations, and finally explain why they have mostly misdiagnosed the issues, and won’t get what they want regardless of who is elected.

The electorate is frustrated because:

• Living standards have declined for the lower 80% of society.
• Many people lost jobs, homes, pensions, etc., during the recent financial crisis… those assets are not coming back anytime soon.  Much of the fault was theirs, but they don’t recognize that, preferring to blame others for their problems.
• Many formerly attractive jobs are disappearing either due to technological change or offshoring (whether corporations or subsidiaries).
• The economy muddles along, and economic policies that average people don’t understand dominate discussion.  Many wonder if anyone is seriously trying to improve matters.  They generally distrust the Fed.
• It doesn’t seem to matter who gets elected, Democrat or Republican — the status quo remains because business interests support the Purple Party, which is the consensus of establishment Republicans and Democrats who duopolize politics in the USA.
• Nothing good seems to happen in DC, and what few significant pieces of legislation have occurred in the Obama years have turned out to be bad (Obamacare) or useless (Dodd-Frank to the average person who doesn’t get it).
• Immigration issues get short shrift, also trade issues.
• Moral issues have basically disappeared from the political agenda in any classical form.  Everything is pragmatic, geared to serve the Purple Party.
• In general, the candidates are pretty lousy, and the moral tone of the campaign has been poor.  That said, negative campaigning works, and the candidates that focus on being negative are doing better.

Now take a moment and think about what people do when they are desperate.  In short, they take longer-shot chances than they would ordinarily take.  They think:

“This person couldn’t be that much worse than what we have going now, and he sounds a lot different than the politicians that I have been hearing for so many years, ad nauseam.  He talks about issues that affect my situation, and is not willing to mince words.  He could be a LOT better than the status quo, which stinks.  

So, the downside is limited, and the upside could be significant.  I don’t care about the rough edges of this guy; the media always blows things out of proportion anyway, and helps foster the consensus candidates that never solve anything.  So, I’m just going to hold my nose and vote for (fill in the blank).”

In my opinion, that’s why politics is nuts over here right now.  Given the relative inability of the electorate to digest complex explanations, there are a lot of matters that they can’t understand, and as a result, regardless of who they elect, they won’t be happy.

Most of the economic and political problems stem from:

• Technological change
• Increasing returns to those that are smart versus those that are not
• Not enough productive children being born
• Attempts to improve the economy that don’t work
• Gerrymandering
• A diminishing consensus on what is right and wrong, and the proper role of government

The technological change is the most important factor, and explains why attempts to limit immigration or limit free trade won’t help.  As a result of the internet, businesses can set up in many areas and benefit from the different aspects of each area — labor here, capital there, taxes way over there.  Unless governments are willing to work together to limit this, and they compete, they don’t cooperate here, this can’t be solved.

Information technology can make lower skilled workers far more productive, leading to a diminution of jobs in many sectors.  This can happen anywhere — in banks, investment shops, factories, and restaurants.  It works anyplace where you can turn 80%+ of a job into a set of rules.  That can move jobs away from where they currently are to places where inexpensive labor can do the work.

In the short-run, this is a problem for many.  In the long run, it will release labor to more valuable pursuits.  That said, many older people will not be capable of retraining, and younger people will gain the opportunities if they are smart.  the “know nots” are becoming “have nots.”

Part of this is payback for not studying enough in school, and/or studying topics that would eventually valuable in college.  As I have said before, “Follow your bliss” is selfish and dumb.  Real value comes, and society improves, from facilitating the bliss of others.  The more people you make happy, the greater the rewards are.

Now, demographics are getting worse for most developing economies.  Most economies do better when the fertility rate is over 2.1 — i.e., that population is growing.  Typically that means that opportunities are growing.  When working populations shrink, social benefit plans begin to collapse, and when populations shrink, countries lose vitality and creativity.  We need youth to replenish its ranks to keep our societies healthy.

Note that efforts to fix fertility by offering tax incentives do not work.  Once women are convinced it is not valuable to have kids, no reasonable amount of effort will change that.

As for economic policy, we are still running policy off of a model that assumes that debts are not high on order for policy to work.  That is why continued deficit spending and abnormal monetary policy (QE & Zero or Negative Interest Rates) aren’t helping.  Helicopter money has its own issues.

Regardless of what happens to the presidency, Congress will remain the same because of gerrymandering.  There’s only so much that even a good President can do if Congress is occupied by ideologues from both sides of the political spectrum.

Finally, the sides of the political spectrum are further apart because there is less consensus on what is right and wrong, and the proper role of government.  In some ways the internet facilitates this because you can filter out the arguments of those who disagree with you more easily.  I set up my news sources so that I am always reading liberals and conservatives, as well as those that don’t fit well on the political map, but few others do.

And that, my friend, is why the political scene is nuts in the US now.  There are a lot of disappointed and desperate people who are willing to try anything to get their prosperity back, even though none of the politicians can do anything that will genuinely help the situation.

It is a recipe for disaster, and absent an act of God, I don’t see anything that will change the attitudes rapidly.  People across the political spectrum are happily believing their own myths; it will take a lot of pain to puncture them all.

PS — I’ve given up alcohol.  We’ll have to figure something else out if we get together.

Courtesy of Alephblog

NYSE margin debt fell again during the month of February. After the selloff in stocks that kicked off 2016, this should come as no surprise. Investors are usually forced to reduce leveraged bets during these sorts of episodes in the stock market. In fact, this forced selling can actually exacerbate the volatility. And because margin debt is only now beginning to come down from record highs, surpassing those seen at the 2000 and 2007 peak, this should be of concern to most equity investors.

To fully appreciate this risk, I prefer to look at margin debt relative to overall economic activity. When leveraged financial speculation becomes large relative to the economy, it’s usually a sign investors have become far too greedy. As Warren Buffett would say, this is usually a good time to become more fearful, or conservative towards the stock market.

Not only did margin debt recently hit nominal record-highs, it hit new record-highs in relation to GDP, as well. In other words, over the past several decades, investors have never become so greedy as they did recently. And yes, this includes the dotcom bubble.

One reason I prefer this measure is that it has a fairly high negative correlation with forward 3-year returns in the stock market. When investors become too greedy, returns over the subsequent 3 years are poor and vice versa. As of the end of February, the latest forecast implied by this measure is for a loss of about 35% over the next three years.

While this measure is pretty good at forecasting 3-year returns that doesn’t help much for investors concerned with the next year or so. In this regard, it may be helpful to observe the trend of margin debt. Where is the nominal level of margin debt relative to its 12-month moving average or simply its level from one year ago? Historically, when these indicators turn negative from such lofty levels, a bear market, as defined by at least a 20% drawdown, is already underway. Right now both of these measure are, in fact, negative.

So margin debt right now is sending a very clear signal that investors have recently become very greedy. This suggests returns over the next several years should be very poor. Finally, the trend in margin debt also suggests that a new bear market is likely underway. If history is to rhyme, that means a decline of at least 20% in the S&P 500 is very likely to occur sometime soon. And because of the sheer size of the potential forced supply that could come to market in this sort of environment, that could easily be just the beginning.

Courtesy of Felderreport

The chart above tracks the broad stock market against the spread of lowest-rated investment-grade corporate bond yields. They normally track each other very closely as they both reflect broad investor risk appetites.

When investors are hungry for risk stock prices move higher and corporate spreads get narrower. When risk aversion takes over, however, stock prices fall and spreads widen.

Another reason they closely track each other is corporations’ ability to access credit is very closely tied to the overall demand for equities. When it’s very cheap for companies to borrow, it’s very easy for them to fund stock buybacks and acquisitions of other companies.

Certainly, these two factors have been very important to the bull market of the past six years or so. Ray Dalio recently said he estimates that buybacks and M&A have roughly amounted to 70% of the total demand for equities.

As spreads widen, it becomes more expensive for companies to borrow and thus more difficult to fund stock buybacks and acquisitions. If Dalio is right then the phenomenon of widening spreads, which has been ongoing for about a year-and-a-half now, ultimately means stocks are gradually losing their single greatest source of demand.

Unless spreads reverse course and begin to narrow again as they did throughout the heart of the bull market, at best they represent a major headwind for stocks. At worst, it could mean that the bull market has lost its final, and most important, backstop.

The Fed has stopped supporting risk appetites via QE; margin debt looks to be reversing off of record-high levels; individual investors have already maxed out their equity exposure; profit margins and earnings have peaked and begun to roll over; corporate leverage is already off the chart and now spreads are widening, making it more difficult to sustain the current pace of buybacks and acquisitions.

Where then will the incremental demand come from to keep the bull market going?

Courtesy of TheFelderReport

Footnote:  I pulled my own longer-term chart, highlighting the area when QE was present. You have to wonder, without QE, where will the demand will come from now?

In addition to charts I uploaded (which there are many more but I'm short on time, it being a holiday) here are a few of my weekend email reads I found interesting. Enjoy - and Happy Easter.

1. Variant sees commercial and industrial lending to continue to fall.  No, not a good thing.
2. The top 20 reasons start ups fail.  Visual Capitalist
3. Think renewables will gain usage over coal and crude oil?  You may be surprised.  McKinsey
4. Domo origato mr roboto Visual Capitalist
5. Here we go again as banks ramp up and push home equity loans (because we didn't learn the last time).  WSJ
6. Brookings says technology actually has not made up more productive (say what?)
7. The richest and poorest countries in the world. Visual Capitalist

"Just setting up my twttr" – those were the words that Jack Dorsey, founder and CEO of Twitter, tweeted on this day ten years ago to begin yet another social media success story. Twitter, with its simplicity and unique 140-character limit, hit a nerve and quickly gained a following among the tech- and media-savvy. In 2011, Twitter passed the 100-million user milestone and in late 2013 the company went public with huge fanfare.

Everything was well in the Twitter universe, but soon after the company’s successful IPO, the sentiment turned sour. Twitter’s user growth was tapering off quickly and the company continued to lose money. In 2015, Twitter’s share price began to tumble and has been on a downward trajectory ever since. It is becoming increasingly clear that, contrary to earlier projections, Twitter is not a second Facebook and probably never will be.

When Facebook celebrated its 10th anniversary a little more than two years ago, the company was much bigger in almost every aspect. Our chart compares 10-year-old Twitter with 10-year-old Facebook with respect to active user base, revenue, profit and market capitalization.

This chart compares 10-year-old Twitter with 10-year-old Facebook with respect to active user base, revenue, profit and market capitalization.

Courtesy of Statista

The market for U.S. millennials is expected to blossom to $1.4 trillion by 2020, according to international consulting firm Accenture. While this generation of digital natives is already a primary marketing target today, in the upcoming years millennials will make up a hefty 30% of all retail spending in the country.

However, millennials are complex and notoriously difficult to read, even for professional marketers. With values that seem to contradict one another, it’s a challenge for companies to successfully gain market share with this audience.

As millennials mature, researchers are gaining ground on the needs and wants of this generation. This week’s Chart of the Week shares data from a comprehensive survey of 3,500 millennials that were asked, without any prompt, about their favorite brands over the past three years. The results, which can be found in deeper depth here, help give us some insight as to what millennials look for in a brand.

Tech Brand Disparity

It’s likely that no one will be surprised to learn that tech brands are among the best polling for millennials.

Apple claimed the top spot in the shortlist of the Top 10 millennial brands, while Samsung, Microsoft, Sony, Amazon, and Google all helped to round out the group.

That said, what did surprise is the lack of showing by other prominent technology brands. Facebook, a company that reaches more than a billion people every day, came in at an extremely disappointing 65th place. That’s behind companies such as LG (20), Dell (28), HP (36), HTC (48), ASUS (52) and eBay (53). It’s even behind dreaded telecom companies like Verizon (61) and AT&T (62).

Meanwhile, Twitter, IBM, Intel, Paypal, and LinkedIn didn’t even register on the Top 100 radar.

Why are some tech brands rocketing up the rankings, while others are falling flat?

Some, but not others?

According to Moosylvania, the researchers behind the survey, there was a major commonality between the top brands for millennials.

They found that millennial cohorts prefer fun and entertaining content to news and information in their social media feeds by a margin of six-to-one. Norty Cohen, CEO of Moosylvania, elaborated on this:

"Entertainment provides a natural opportunity for a brand to connect as shareable content. These cohorts are marketing themselves, and when a brand doesn’t take itself too seriously but instead provides fun that can be shared, it works."

Could Facebook be the destroyer of fun, by monetizing people’s news feeds? Are IBM and LinkedIn too “businessy” to poke fun at themselves? Perhaps Paypal is too financial – a damning trait, since not a single Top 100 brand was a bank or financial institution.

This may explain why a higher degree of millennials are happy to leave traditional and boring financial institutions in the dust. In a previous chart, we showed 49% of millennials are much more open to engaging tech companies for financial services, while only 16% of people of other generations feel the same. It may also be a problem that rising fintech companies such as Venmo, Lending Club, Nutmeg, and others can solve.

Robert Epstein, a senior research psychologist at the American Institute for Behavioral Research and Technology in California and the former editor-in-chief of Psychology Today, warns us of a insidious and pervasive new form of mind control: search results.

That’s right, search results. And not just any search results: Google search results. Since 2013 Epstein and colleagues have conducted a number of experiments in the US and India to determine whether search results can impact people’s political opinions.

Epstein points out that about 50 percent of our clicks go to the top two items on the first page of results, and more than 90 percent of our clicks go to the 10 items listed. And of course Google, which dominates the search business, decides which of the billions of web pages to include in our search results, and it decides how to rank them.

But surely, Epstein thought, a top search result would have only a small impact on a person’s political choices. Not so! To Epstein’s surprise, in his initial experiment he found that the proportion of people favouring the (bogus, skewed) search engine’s top-ranked candidate increased by more than 48 percent! Also, 75 percent of the subjects in the study were completely unaware that they were viewing biased search rankings.

He conducted several more experiments, including one that involved more than 2,000 people from all 50 US states. In that experiment, the shift in voting preferences induced by the researchers was 37 percent, and as high as 80 percent in some demographic groups.

Epstein was still skeptical. He asked,

Could voting preferences be shifted with real voters in the middle of a real campaign? … In real elections, people are bombarded with multiple sources of information, and they also know a lot about the candidates. It seemed unlikely that a single experience on a search engine would have much impact on their voting preferences.

So off his team went to India. They arrived just before voting began in the largest democratic election in the world, to select the nation’s prime minister. They recruited 2,150 people from 27 of India’s 35 states and territories to participate in their experiment. (To take part, they had to be registered voters who had not yet voted and who were still undecided about how they would vote.)

Again, Epstein predicted that their manipulation of search results would produce only a very small effect, if any – but that’s not what happened. On average, the researchers were able to shift the proportion of people favoring any given candidate by more than 20 percent overall and by more than 60 percent in some demographic groups. In addition, 99.5 percent of participants showed no awareness that they were viewing biased search rankings.

So this was all quite surprising. Says Epstein:

We published a detailed report about our first five experiments … in the prestigious Proceedings of the National Academy of Sciences (PNAS) in August 2015. We had indeed found something important, especially given Google’s dominance over search. Google has a near-monopoly on internet searches in the US, with 83 per cent of Americans specifying Google as the search engine they use most often, according to the Pew Research Center. So if Google favours one candidate in an election, its impact on undecided voters could easily decide the election’s outcome.

But that’s a big “could.” I was skeptical, too. Would Google ever act so nefariously? Aren’t those Silicon Valley guys all live-and-let-die free-market Libertarians? And then I thought again. The presidency of the United States is a big deal. The president may not be all-powerful, but he (or maybe, in the near future, she) is about as close as it comes on this planet. And national elections – whether in this country or any other – have never exactly been squeaky clean. They have always been about big money, and in recent decades they have been about big media. Now, says Epstein, they are also about big data.

So let’s say Google decided that it was in the best interests of all concerned to do whatever it could to help us select our next president. How might it go about it? Says Epstein,

(I)f Google set about to fix an election, it could first dip into its massive database of personal information to identify just those voters who are undecided. Then it could, day after day, send customised rankings favouring one candidate to just those people. One advantage of this approach is that it would make Google’s manipulation extremely difficult for investigators to detect.

But it gets scarier – and a lot more real – when we remember that in the 2012 presidential election, Google and its top execs contributed more than $800,000 to Barack Obama and just $37,000 to Mitt Romney. Meanwhile, have you heard of The Groundwork? That would be the outfit that Quartz describes as “The stealthy, Eric Schmidt-backed startup that’s working to put Hillary Clinton in the White House” – Eric Schmidt being the executive chairman of Google’s parent company, Alphabet.

(Amusing sidebar: Google “the groundwork” and then click on the No. 1 result. That’s right, you get this:

Just one page. No links. Sinister? You betcha.)

There’s more – a lot more – to Epstein’s cautionary tale, so I’ll get out of the way and let him tell it.  See entire PDF format.

One item I completely agree with is the pundits and "know it alls" on entertainment news television.  They're there to entertain you; not make you rich.  I get my economic releases on them and *off* they go the rest of the day.  I trust my charts; charts don't lie.  People do.

Courtesy of Martinkronicle

According to the latest research from Strategy Analytics, global smartwatch shipments reached 8.1 million units in Q4 2015, compared with 7.9 million Swiss Watch shipments. It is the first time ever that smartwatches have outshipped Swiss watches on a global basis.

Cliff Raskind, Director at Strategy Analytics, said, “We estimate global smartwatch shipments reached 8.1 million units in Q4 2015, rising a healthy 316 percent from 1.9 million in Q4 2014. Smartwatches are growing rapidly in North America, Western Europe and Asia. Apple Watch captured an impressive 63 percent share of the global smartwatch market in Q4 2015, followed by Samsung with 16 percent. Apple and Samsung together account for a commanding 8 in 10 of all smartwatches shipped worldwide.”

Steven Waltzer, Analyst at Strategy Analytics, added, “We estimate global Swiss watch shipments reached 7.9 million units in Q4 2015, falling 5 percent from 8.3 million in Q4 2014.  Global demand for Swiss watches is slowing down, and major players like Swatch are struggling to find growth.”

Neil Mawston, Executive Director at Strategy Analytics, added, “The Swiss watch industry has been very slow to react to the development of smartwatches. The Swiss watch industry has been sticking its head in the sand and hoping smartwatches will go away. Swiss brands, like Tag Heuer, accounted for a tiny 1 percent of all smartwatches shipped globally during Q4 2015, and they are long way behind Apple, Samsung and other leaders in the high-growth smartwatch category.”

The question now is, who can gain market share as usage grows and who will lose?

The numbers are astounding, and hopefully help to create perspective on the scale of technology and business.  In just 10 seconds, close to 225,000 GB of data is transferred, with over 500,000 posts on Facebook, 57,000 tweets, 46,000 searches on Google, and 2 million messages sent on WhatsApp. 

There is no question that the most profound factor affecting modern life is the ability to replicate and store data at almost no cost. This revolution in information has provided us with a wealth of benefits and possibilities for an incredibly low marginal price.

At zero cost, we can connect to a global store of all human knowledge. New apps with impressive features can cost less than a dollar, and our monthly Netflix subscriptions hardly register on our credit card statements. Meanwhile, we share our thoughts about the world with our friends and family at no cost through social networks, email, or other means of communications. This hasn’t been possible throughout human existence, and it is only feasible now because of the incredible scale of the internet.

While we all make the connection that these individual activities help to bring in revenue to the world’s tech giants, the ultimate size and scale of the numbers in aggregate are almost incomprehensible to the human brain.

How many Google searches do you make each day? What about your neighborhood, city, or country? How about the world?

Today’s two visualizations look at the sheer amounts of data processed every 10 seconds by the world’s tech giants, as well as the amount of impressive profit yielded.

Click above to view the full version [h/t Penny Stocks].
Click above to view the interactive version [h/t pennystocks].

Courtesy of VisualCapitalist