AI- Artificial Intelligence

 AI is the flavor of the month. Be it in stocks, what it does etc. My theory is it makes you dumber and dumber. 

    Remember there was a time when you could remember phone numbers of known people and could dial of a landline.  With mobile even your house number or your wife's number is to be checked on phone.

    Remember there was a time when you used to add up to a four digit number across 20-30 rows and could total. With Excel, you have probably forgotten to add a two digit number and need to XL to get the answer.

    Remember there was  a time when you used to add/subtract/multiply/divide mentally small digits. Now you need a calculator.

With google, it used to be google says. Now with AI it is AI says.

AI is far more dangerous. Google at least searched databases and gave an optimum reply. AI is being trained by you (LLM- large language module) on how a human THINKS (remember IBM had the logo THINK in its office to make its staff more creative) and acts and makes repetitive  process redundant. Soon you will lose the ability to think and inform AI to do it.

AI has found ways to create reports, summarize pages of materials, emails etc in both academia and business making education redundant.

People are wondering what courses to take - lawyers (AI can read millions of books and cite references and law cases), Accountants ( Read rules and make entries on its own), Teachers (can read and teach), Investments (go through Qtr, Annual reports, xirr, pe, pb etc. etc and provide investment tips) and so on. Only CREATIVE work cannot be replicated. 

Recently, I did an experiment- Writing an APP. By giving right questions, Claude generated in 15 mins what i wanted (see my App blog) by writing codes in Json, python, html etc and a free host site. Ofcouse, for putting it up in android or apple play stores you have to pay which i did not do as it was an experiment.

AI can start a nuclear war, destruct many things, possibly give process to make bombs (rogue person or countries can use) or even plan a perfect murder. All these concerns has made the top guns of AI to say to Slowdown till we bring in more security  

 

 

 

 

 

 

 

 

BONDS

 Today I would like to discuss about bonds. The one that is supposedly safe (except AT1 bonds- see yes bank and hdfc cases). Bonds generally have a binding agreement to pay interest and capital after a mutually determined set period of time.

Below I will generally talk of US bonds as they are currently presumably the safest. All govt. bonds are generally safe till they default on payments. That way US with huge economic and defence power is presumably the safest issuer of bonds (also Called Treasury or T- bills). They come in various tenure but our focus is on Short term bond (91 days T bonds) or Long term bond (30 Year T bonds). These two are famous with many in between.

Short Term T bonds are considered safe (till $ rules) and most liquid and lot of companies/govts buy them to hold their $s and earn some money. Current int. rate is around 3.97%.

Long Term T bonds are also considered safe but come with a duration risk. 30 year bond carries risk in the sense that $ may go our of fashion. If int. rate rises, then LT bond holders are holding the bonds at a lower int. rate. In LT, the risk is postponed and govt has to pay the principal after 30 years and more importantly it cannot be cashed easily (at full value- only on maturity) and only after waiting 30 years. ST and LT are duration based. Thus 29.8 year old over of the 30 year bond can be a ST bond.

Due to liquidity and duration risk, the ST bonds offer a lower int  (3.97%) vs. LT bonds ( 5.29%). This is called a YIELD curve. Generally up from ST bonds to LT bonds (remember duration risk). But what is Yield.

Let us give an example. I buy a ST Bond  of Face Value 1000$ and it pays a coupon rate of 3%. I.E. it gives me an annual int of 3% or 30$ every year I hold it. But (mkt is liquid) I sense a good opportunity of earning 8%, so I dump these bonds at 800$ (even at a loss I have an opportunity with lower cash to make better money). Please note we are talking of billions of $s and the impact larger. Eg of 1000$ is only to understand. Thus a guy who buys the bond at $800 still gets 30$ interest. Thus 3%/800*1000=3.75% a higher int. on his investment. This is called Yield. The Yield rises on every fall in Bond prices. This is the fundamental of Bond investment.

 As I said earlier the Yield curve is generally a rising curve from ST Bonds to LT bonds. But some time the curve is reversed i.e ST interest higher than LT interest. This is called an Inverted Yield Curve.

Why does this happen? Before that understand that for an Inverted Yield curve to happen the ST Interest Yield rate should be higher than LT Interest Yield rate. In bond parlance the YIELD is dropped though it actually is, and people refer as ST or Lt interest rate.

Coming back to the question- Why does this happen. Implies ST bonds are being dumped at a faster rate than LT bonds. This could be because ST holders are finding a) better asset class returns (eg AI) and dumping bonds to buy stocks of - Google, Meta, SYhynx, Samsung, TSCM etc) b) a big liquid call to pay dividends or redemption or margin calls c) Interest expectation to go lower -so sell ST and buy LT bonds to lock higher interest rate.

LT bonds can also fall a) interest rate expectation to go higher b) higher inflation c) higher govt deficit (causing confidence loss on bonds), d) Economic slow down e) rising oil prices.

Some economists and market watchers, consider the Inverted Yield curve as a sign of recession, primarily because of (d) above. 

Banks profit by paying ST deposit rat and charging higher LT rates - Net Interest Margin or NIM 

Recently, lot of AI companies went for Bonds to fund their AI forays and they paid a higher bond interest. While the bond boom in supply, instead of companies putting their cash, increased, these were absorbed by bond market. But higher interest in these bonds, made investor also want higher interest in long term bonds and thus the spike in long term bonds (only if govt. offers higher int, will investors put in bonds for safety.

Another reason is Bond investors look for Duration risk and if they find that 10-30 years from now they are not sure about the country (due to inflation risk, rising int. cost, country borrowing etc.), they abandon it going for short term treasury (91 days to 2 years).

All this have made the bond yield rise.

 

 

Do Generalist succeed or Specialists

 

Sigmund Freud and his nephew Bernays

 Saw an interesting article in Kuwait times and is worth putting in here. Here it goes.

Frauds- some example

 

In spite of the huge technology advances, Fraud keeps happening by making people gullible or provide incentives to make more money quickly. As i keep mentioning that only a few out of Trillions in the stock market make returns commensurate with their effort or a fairly large return. But these returns come from losers generally, unless the company has done really well.

One example of making people gullible is for, say, 50 people are targeted by X. 25 he tells a share Y to be bought because it will go UP and 25 he tells share Y to be sold because it will go DOWN. Depending on which 25 is correct, he splits the 25 into 12 and 13. He tells a Share Y to be bought because it will go UP and 13 he tells will go DOWN. Depending on which way stock has gone he splits the next, say 12 into 6 and 6. By now the guy who was in 25 (go UP) is sure the guy is on to something. next time he is in the 12 UP, he is more convinced. Now the 3rd time (out of 6) the guy who is giving tip is more convincing that he is for real prediction and the gullible person sends him money to double or triple it. Off goes the money.

Another Fraud example is Cashier is only supposed to collect money and not invoice. To manage with lower staff, Cashier was given the responsibility of making the invoice and for adjustments. (internal control of segragting cash collection and invoice) Cashier took money from the customer and stamped received on the Proforma invoice and gave it to customer, for say 105 KD. Then after customer left he pocketed 5 KD and made the invoice to 100 KD and customer paid 100 KD. Accounts side no dues as 100 KD invoice matched to 100 KD payment. He was doing it for 10-20 invoices in a day pocketing 100KD/day. Being smart, he targeted it on some days only and not all to avoid suspicion. He was caught one day when the customer had an issue and came with proforma invoice. On checking while proforma showed 105 KD the actual invoice in system was 100 KD. IT checked all his transactions, and it was found over a 2 year period he has taken out 10000 KD in all. Thus if management had heard internal control to keep invoicing  and payment separate this could not have happened. Cashier had invoicing adjustment to round of currency to the nearest 0 or 5 at the end.

 OTP  sharing or Phone sharing is a definite NO NO. Software security works on 3 principles

     a) Something you have (your phone, laptop, physical key) 

    b) Something you know ( Password, PIN, Security Questions)

    c) Something you acquire or Are (OTP, face recognition, thumb impression ). 

The fraudster has already access to a) & b) through net or when you lose your phone. Thus, when you share an OTP the banks have to pay and you do not have a recourse to recover it from banks. 

Always, though tedious, use MFA (multi factor authorization). This uses b) c) and a google/MS or any authenticator. Its a two step process. You put your password or pin in say a laptop and it sends out a code to your mobile or email ID. Thus it double checks before allowing access or transaction. How long before the fraudster locate a loophole on this is to be seen.

Giving your phone- gives the fraudster a chance to change the message forwarding to his phone and thus any OTP goes to his phone. Thus if someone in Emergency asks for phone, dial the number and put it on speaker to see if it is genuine. Do not hand over the phone as experts can within seconds do the message forwarding procedures.

 Digital Arrest- Nobody can digitally arrest you by saying you cannot call somebody etc. 

Link click - Never click on an unknown link which attacks your vulnerability - eg someone is in hospital and unknown person says I will send you a link of a Dr to treat quickly etc, or someone has a huge loan to pay and unknown person says I will pay loan for you and you can pay me later. What these links contain is called an APK file that is a malware and sits on your phone or laptop (when you click) and sends out all your information (ID, pwd, keystrokes, links, contacts etc). Easy to defraud you later.

 Reconfirm- With people sharing photos, videos, audios on public places, like WA, Insta, FB, Tiktok etc, AI can use to physically be you to talk to your loved ones. Ex. Your wife receives a phone call from an AI generated picture of you saying you met with an accident or serious issue and need INR 1,00,000 to be sent immediately to a link or number. You send and 5 mins later your husband walks in not aware of anything like this. In Such cases, when you receive a call, dont panic. get the details (extend call to get details- normally they cut it), and cut the call and call from your phone or another to the husband to check if it is genuine or fraud. 

 

Always note that if the fraudster comes to know that you are delaying, you are not panicking, you may be aware of technology etc. they cancel and go for next easy victim. 

 

 

 

 

 

 

 

Exercise of body and mind

 You may be worth Crores, but as the saying goes Health is Wealth. This you realize when you have a failing health and would give away all the money to alleviate the pain you are facing. As a young lad or gentlemen, you tend to ignore health thinking it is part of fun to not exercise or go to gym.

Suddenly, upon reaching the age of 50 or even 60 you find yourself like regular SIPs you either missed out on investment and thought of become rich is dead or been doing it regularly.

It has been found and I can vouch for it, that after 60 your flexibility becomes less (unless you are doing yoga) and body tends to stiffen. The exercise of bending and touching toes which you used to do becomes a huge task.

The most influential areas, according to me, that need to be exercised regularly like SIPs are the shoulder and legs. These are the two pillars of old age. Mere walking, as per me, is not sufficient. Shoulder and legs have to be exercised till you feel the pain and can sweat it out. Mere walking may be good, but it does not push you to achieve a bit more that will hold you in good stead.

A simple daily 10 mins of Tai Chi (or yoga or pilates or whatever you decide) to strengthen the muscles on the shoulder and legs are important as you go into 50's and 60's.

The reason for Tai Chi is it looks simple, but the 1 minute repetition of the  exercise for 10-15 mins, makes you sweat.

One more advice once you cross 60 is dont run around like you are in 30's and always hold on to support while doing something as leg muscles turn rubbery and a fall can cause a huge issue.

For a month every year de clutter your brain- by not attending to mobile, laptop. All big business people do to get new ideas for future years. 

 

Bhagavth Geeta message

 

One would have often come across Bhagavath Geeta message that "Do your duty and not wait for the fruits of your labor". Lot of people, particularly the scientific bent of mind always brought up on Cause and Effect scenario find it difficult to understand the concept. They do not know that there could be other variables in the system that could fail the cause and effect scenario. A captain of the ship controls it but does not know how the sea will behave. This does not mean he does not put in his effort. This is what the fruits of labor need not necessarily come if efforts are put in.

 Thus, even if you do your duty and still do not get fruits, how you deal with that situation is what the Geeta is about. Extending the above example of sailor, the captain puts in the effort not knowing how the sea will behave and if he will be able to bring the ship to harbour safely. The effort put in improves the probability of a favourable result.

Read one version recently and it states - Bhagavath Geeta message is never a method for a win. It is a solution for how to deal in case of a loss.

It talks about attachment causes suffering. Now we all know that having being born to this world one day one we will die. It is a fact, but the amount of distress one goes through when one loses a close one even if they are in the 90s. Geeta teaches one to be clinical. The more you are attached the more the pain and less attachment is how you deal a loss by keeping your expectations and reality at nearly the same level. 

Today, life is full of uncertainty. Every country wants to fight with other to get the benefits for internal vote or assets of others. One should understand that reality and not have the expectation of hunky dory throughout. This is the principal of investment. Ups and Downs will be there, but steady investment effort should go on.