While internet access is taken for granted in the West, about two-thirds of the world’s population is not connected to the internet. This leads to unfair competition and increasing economic inequality in the world with unconnected societies struggling to get good results in agriculture, health, education, and overall development. In this 21st century, access to the internet should be a basic tool available to all.
Technology giants Facebook and Google have made it their focus to provide internet access to the entire world through very ambitious projects. Google’s Project Loon is hoping to provide “balloon-powered internet for everyone,” using connected balloons that fly at the edge of space, providing internet connectivity to those below. Facebook-supported Internet.org has a goal to connect people around the entire world through the use of satellites, lasers, and drones.
Facebook’s intended projects work in the atmospheric range, while Google’s balloons would transit in the stratosphere; Facebook vehicles use solar and Loon uses wind primarily. The media has highlighted the fact that these companies are competing in the market, but the real conversation should be focused on how the world can access the internet efficiently and effectively.
In internet cafes I have visited in Sierra Leone, for example, the gateway to online information is often Facebook. In fact, for many people with limited and intermittent access, the internet starts and ends with Facebook, where they connect with old friends and track new ones via news feeds. However, as the internet becomes more accessible, the need for more and more reliable information will likely send people in greater numbers toward Google Search.
At the end of the day, the hope is that, with more internet access for people all around the world, there will be more information and connectivity that will lead to positive impacts on education, health and economic development. If this happens, both Google and Facebook will continue to win, as will the entire world.
The real question for all the entrepreneurs out there is this: what would you do with all this newfound connectivity? Please leave a comment below.
Submitted by Tyler Durden
The Burning Questions For 2015By Louis-Vincent Gave, Gavekal Dragonomics
With two reports a day, and often more, readers sometimes complain that keeping tabs on the thoughts of the various Gavekal analysts can be a challenge. So as the year draws to a close, it may be helpful if we recap the main questions confronting investors and the themes we strongly believe in, region by region.
1. A Chinese Marshall Plan?
When we have conversations with clients about China – which typically we do between two and four times a day – the talk invariably revolves around how much Chinese growth is slowing (a good bit, and quite quickly); how undercapitalized Chinese banks are (a good bit, but fat net interest margins and preferred share issues are solving the problem over time); how much overcapacity there is in real estate (a good bit, but – like youth – this is a problem that time will fix); how much overcapacity there is in steel, shipping, university graduates and corrupt officials; how disruptive China’s adoption of assembly line robots will be etc.
All of these questions are urgent, and the problems that prompted them undeniably real, which means that China’s policymakers certainly have their plates full. But this is where things get interesting: in all our conversations with Western investors, their conclusion seems to be that Beijing will have little choice but to print money aggressively, devalue the renminbi, fiscally stimulate the economy, and basically follow the path trail-blazed (with such success?) by Western policymakers since 2008. However, we would argue that this conclusion represents a failure both to think outside the Western box and to read Beijing’s signal flags.
In numerous reports (and in Chapters 11 to 14 of Too Different For Comfort) we have argued that the internationalization of the renminbi has been one of the most significant macro events of recent years. This internationalization is continuing apace: from next to nothing in 2008, almost a quarter of Chinese trade will settle in renminbi in 2014:
This is an important development which could have a very positive impact on a number of emerging markets. Indeed, a typical, non-oil exporting emerging market policymaker (whether in Turkey, the Philippines, Vietnam, South Korea, Argentina or India) usually has to worry about two things that are completely out of his control:
1) A spike in the US dollar. Whenever the US currency shoots up, it presents a hurdle for growth in most emerging markets. The first reason is that most trade takes place in US dollars, so a stronger US dollar means companies having to set aside more money for working capital needs. The second is that most emerging market investors tend to think in two currencies: their own and the US dollar. Catch a cab in Bangkok, Cairo, Cape Town or Jakarta and ask for that day’s US dollar exchange rate and chances are that the driver will know it to within a decimal point. This sensitivity to exchange rates is important because it means that when the US dollar rises, local wealth tends to flow out of local currencies as investors sell domestic assets and into US dollar assets, typically treasuries (when the US dollar falls, the reverse is true).
2) A rapid rise in oil or food prices. Violent spikes in oil and food prices can be highly destabilizing for developing countries, where the median family spends so much more of their income on basic necessities than the typical Western family. Sudden spikes in the price of food or energy can quickly create social and political tensions. And that’s not all; for oil-importing countries, a spike in oil prices can lead to a rapid deterioration in trade balances. These tend to scare foreign investors away, so pushing the local currency lower and domestic interest rates higher, which in turn leads to weaker growth etc…
Looking at these two concerns, it is hard to escape the conclusion that, as things stand, China is helping to mitigate both:
- China’s policy of renminbi internationalization means that emerging markets are able gradually to reduce their dependence on the US dollar. As they do, spikes in the value of the US currency (such as we have seen in 2014) are becoming less painful.
- The slowdown in Chinese oil demand, as well as China’s ability to capitalize on Putin’s difficulties to transform itself from a price-taker to a price-setter, means that the impact of oil and commodities on trade balances is much more contained.
Beyond providing stability to emerging markets, the gradual acceptance of the renminbi as a secondary trading and reserve currency for emerging markets has further implications. The late French economist Jacques Rueff showed convincingly how, when global trade moved from a gold-based settlement system to a US dollar-based system, purchasing power was duplicated. As the authors of a recent Wall Street Journal article citing Reuff’s work explained: “If the Banque de France counts among its reserves dollar claims (and not just gold and French francs) – for example a Banque de France deposit in a New York bank – this increases the money supply in France but without reducing the money supply of the US. So both countries can use these dollar assets to grant credit.” Replace Banque de France with Bank Indonesia, and US dollar with renminbi and the same causes will lead to the same effects.
Consider British Columbia’s recently issued AAA-rated two year renminbi dim sum bond. Yielding 2.85%, this bond was actively subscribed to by foreign central banks, which ended up receiving more than 50% of the initial allocation (ten times as much as in the first British Columbia dim sum issue two years ago). After the issue British Columbia takes the proceeds and deposits them in a Chinese bank, thereby capturing a nice spread. In turn, the Chinese bank can multiply this money five times over (so goes money creation in China). Meanwhile, the Indonesian, Korean or Kazakh central banks that bought the bonds now have an asset on their balance sheet which they can use to back an expansion of trade with China…
Of course, for trade to flourish, countries need to be able to specialize in their respective comparative advantages, hence the importance of the kind of free trade deals discussed at the recent APEC meeting. But free trade deals are not enough; countries also need trade infrastructure (ports, airports, telecoms, trade finance banks etc…). This brings us to China’s ‘new silk road’ strategy and the recent announcement by Beijing of a US$40bn fund to help finance road and rail infrastructure in the various ‘stans’ on its western borders in a development that promises to cut the travel time from China to Europe from the current 30 days by sea to ten days or less overland.
Needless to say, such a dramatic reduction in transportation time could help prompt some heavy industry to relocate from Europe to Asia.
That’s not all. At July’s BRICS summit in Brazil, leaders of the five member nations signed a treaty launching the US$50bn New Development Bank, which Beijing hopes will be modeled on China Development Bank, and is likely to compete with the World Bank. This will be followed by the establishment of a China-dominated BRICS contingency fund (challenging the International Monetary Fund). Also on the cards is an Asian Infrastructure Investment Bank to rival the Asian Development Bank.
So what looks likely to take shape over the next few years is a network of railroads and motorways linking China’s main production centers to Bangkok, Singapore, Karachi, Almaty, Moscow, Yangon, Kolkata. We will see pipelines, dams, and power plants built in Siberia, Central Asia, Pakistan and Myanmar; as well as airports, hotels, business centers… and all of this financed with China’s excess savings, and leverage. Given that China today has excess production capacity in all of these sectors, one does not need a fistful of university diplomas to figure out whose companies will get the pick of the construction contracts.
But to finance all of this, and to transform herself into a capital exporter, China needs stable capital markets and a strong, convertible currency. This explains why, despite Hong Kong’s pro-democracy demonstrations, Beijing is pressing ahead with the internationalization of the renminbi using the former British colony as its proving ground (witness the Shanghai-HK stock connect scheme and the removal of renminbi restrictions on Hong Kong residents). And it is why renminbi bonds have delivered better risk-adjusted returns over the past five years than almost any other fixed income market.
Of course, China’s strategy of internationalizing the renminbi, and integrating its neighbors into its own economy might fall flat on its face. Some neighbors bitterly resent China’s increasing assertiveness. Nonetheless, the big story in China today is not ‘ghost cities’ (how long has that one been around?) or undercapitalized banks. The major story is China’s reluctance to continue funneling its excess savings into US treasuries yielding less than 2%, and its willingness to use that capital instead to integrate its neighbors’ economies with its own; using its own currency and its low funding costs as an ‘appeal product’ (and having its own companies pick up the contracts as a bonus). In essence, is this so different from what the US did in Europe in the 1940s and 1950s with the Marshall Plan?
2. Japan: Is Abenomics just a sideshow?
With Japan in the middle of a triple dip recession, and Japanese households suffering a significant contraction in real disposable income, it might seem that Prime Minister Shinzo Abe has chosen an odd time to call a snap election. Three big factors explain his decision:
1) The Japanese opposition is in complete disarray. So Abe’s decision may primarily have been opportunistic.
2) We must remember that Abe is the most nationalist prime minister Japan has produced in a generation. The expansion of China’s economic presence across Central and South East Asia will have left him feeling at least as uncomfortable as anyone who witnessed his Apec handshake with Xi Jinping three weeks ago. It is not hard to imagine that Abe returned from Beijing convinced that he needs to step up Japan’s military development; a policy that requires him to command a greater parliamentary majority than he holds now.
3) The final factor explaining Abe’s decision to call an election may be that in Japan the government’s performance in opinion polls seems to mirror the performance of the local STOCK MARKET (wouldn’t Barack Obama like to see such a correlation in the US?). With the Nikkei breaking out to new highs, Abe may feel that now is the best time to try and cement his party’s dominant position in the Diet.
As he gets ready to face the voters, how should Abe attempt to portray himself? In our view, he could do worse than present himself as Japan Inc’s biggest salesman. Since the start of his second mandate, Abe has visited 49 countries in 21 months, and taken hundreds of different Japanese CEOs along with him for the ride. The message these CEOs have been spreading is simple: Japan is a very different place from 20 years ago. Companies are doing different things, and investment patterns have changed. Many companies have morphed into completely different animals, and are delivering handsome returns as a result. The relative year to date outperformances of Toyo Tire (+117%), Minebea (+95%), Mabuchi (+57%), Renesas (+43%), Fuji Film (+33%), NGK Insulators (+33%) and Nachi-Fujikoshi (+19%) have been enormous. Or take Panasonic as an example: the old television maker has transformed itself into a car parts firm, piggy-backing on the growth of Tesla’s model S.
Yet even as these changes have occurred, most foreign investors have stopped visiting Japan, and most sell-side firms have stopped funding genuine and original research. For the alert investor this is good news. As the number of Japanese firms at the heart of the disruptions reshaping our global economy – robotics, electric and self-driving cars, alternative energy, healthcare, care for the elderly – continues to expand, and as the number of investors looking at these same firms continues to shrink, those investors willing to sift the gravel of corporate Japan should be able to find real gems.
Which brings us to the real question confronting investors today: the ‘Kuroda put’ has placed Japanese equities back on investor’s maps. But is this just a short term phenomenon? After all, no nation has ever prospered by devaluing its currency. If Japan is set to attract, and retain, foreign investor flows, it will have to come up with a more compelling story than ‘we print money faster than anyone else’.
In our recent research, we have argued that this is exactly what is happening. In fact, we believe so much in the opportunity that we have launched a dedicated Japan corporate research service (GK Plus Alpha) whose principals (Alicia Walker and Neil Newman) are burning shoe leather to identify the disruptive companies that will trigger Japan’s next wave of growth.
3. Should we worry about capital misallocation in the US?
The US has now ‘enjoyed’ a free cost of money for some six years. The logic behind the zero-interest rate policy was simple enough: after the trauma of 2008, the animal spirits of entrepreneurs needed to be prodded back to life. Unfortunately, the last few years have reminded everyone that the average entrepreneur or investor typically borrows for one of two reasons:
- Capital spending: Business is expanding, so our entrepreneur borrows to open a new plant, or hire more people, etc.
- Financial engineering: The entrepreneur or investor borrows in order to purchase an existing cash flow, or stream of income. In this case, our borrower calculates the present value of a given income stream, and if this present value is higher than the cost of the debt required to own it, then the transaction makes sense.
Unfortunately, the second type of borrowing does not lead to an increase in the stock of capital. It simply leads to a change in the ownership of capital at higher and higher prices, with the ownership of an asset often moving away from entrepreneurs and towards financial middlemen or institutions. So instead of an increase in an economy’s capital stock (as we would get with increased borrowing for capital spending), with financial engineering all we see is a net increase in the total amount of debt and a greater concentration of asset ownership. And the higher the debt levels and ownership concentration, the greater the system’s fragility and its inability to weather shocks.
We are not arguing that financial engineering has reached its natural limits in the US. Who knows where those limits stand in a zero interest rate world? However, we would highlight that the recent new highs in US equities have not been accompanied by new lows in corporate spreads. Instead, the spread between 5-year BBB bonds and 5-year US treasuries has widened by more than 30 basis points since this summer.
Behind these wider spreads lies a simple reality: corporate bonds issued by energy sector companies have lately been taken to the woodshed. In fact, the spread between the bonds of energy companies, and those of other US corporates are back at highs not seen since the recession of 2001-2002, when the oil price was at US$30 a barrel.
The market’s behavior raises the question whether the energy industry has been the black hole of capital misallocation in the era of quantitative easing. As our friend Josh Ayers of Paradarch Advisors (Josh publishes a weekly entitled The Right Tale, which is a fount of interesting ideas. He can be reached at firstname.lastname@example.org) put it in a recent note: “After surviving the resource nadir of the late 1980s and 1990s, oil and gas firms started pumping up capex as the new millennium began. However, it wasn’t until the purported end of the global financial crisis in 2009 that capital expenditure in the oil patch went into hyperdrive, at which point capex from the S&P 500’s oil and gas subcomponents jumped from roughly 7% of total US fixed investment to over 10% today.”
“It’s no secret that a decade’s worth of higher global oil prices justified much of the early ramp-up in capex, but a more thoughtful look at the underlying data suggests we’re now deep in the malinvestment phase of the oil and gas business cycle. The second chart (above) displays both the total annual capex and the return on that capex (net income/capex) for the ten largest holdings in the Energy Select Sector SPDR (XLE). The most troublesome aspect of this chart is that, since 2010, returns have been declining as capex outlays are increasing. Furthermore, this divergence is occurring despite WTI crude prices averaging nearly $96 per barrel during that period,” Josh noted.
The energy sector may not be the only place where capital has been misallocated on a grand scale. The other industry with a fairly large target on its back is the financial sector. For a start, policymakers around the world have basically decided that, for all intents and purposes, whenever a ‘decision maker’ in the financial industry makes a decision, someone else should be looking over the decision maker’s shoulder to ensure that the decision is appropriate. Take HSBC’s latest results: HSBC added 1400 compliance staff in one quarter, and plans to add another 1000 over the next quarter. From this, we can draw one of two conclusions:
1) The financial firms that will win are the large firms, as they can afford the compliance costs.
2) The winners will be the firms that say: “Fine, let’s get rid of the decision maker. Then we won’t need to hire the compliance guy either”.
This brings us to a theme first explored by our friend Paul Jeffery, who back in September wrote: “In 1994 Bill Gates observed: ‘Banking is necessary, banks are not’. The primary function of a bank is to bring savers and users of capital together in order to facilitate an exchange. In return for their role as [trusted] intermediaries banks charge a generous net spread. To date, this hefty added cost has been accepted by the public due to the lack of a credible alternative, as well as the general oligopolistic structure of the banking industry. What Lending Club and other P2P lenders do is provide an online market-place that connects borrowers and lenders directly; think the eBay of loans and you have the right conceptual grasp. Moreover, the business model of online market-place lending breaks with a banking tradition, dating back to 14th century Florence, of operating on a “fractional reserve” basis. In the case of P2P intermediation, lending can be thought of as being “fully reserved” and entails no balance sheet risk on the part of the service facilitator. Instead, the intermediary receives a fee- based revenue stream rather than a spread-based income.”
There is another way we can look at it: finance today is an abnormal industry in two important ways:
1) The more the sector spends on information and communications technology, the bigger a proportion of the economic pie the industry captures. This is a complete anomaly. In all other industries (retail, energy, telecoms…), spending on ICT has delivered savings for the consumers. In finance, investment in ICT (think shaving seconds of trading times in order to front run customer orders legally) has not delivered savings for consumers, nor even bigger dividends for shareholders, but fatter bonuses and profits for bankers.
2) The second way finance is an abnormal industry (perhaps unsurprisingly given the first factor) lies in the banks’ inability to pass on anything of value to their customers, at least as far as customer’s perceptions are concerned. Indeed, in ‘brand surveys’ and ‘consumer satisfaction reports’, banks regularly bring up the rear. Who today loves their bank in a way that some people ‘love’ Walmart, Costco, IKEA, Amazon, Apple, Google, Uber, etc?
Most importantly, and as Paul highlights above, if the whole point of the internet is to:
a) measure more efficiently what each individual needs, and
b) eliminate unnecessary intermediaries,
then we should expect a lot of the financial industry’s safe and steady margins to come under heavy pressure. This has already started in the broking and IN THE MONEY management industries (where mediocre money managers and other closet indexers are being replaced by ETFs). But why shouldn’t we start to see banks’ high return consumer loan, SME loan and credit card loan businesses replaced, at a faster and faster pace, by peer-to-peer lending? Why should consumers continue to pay high fees for bank transfers, or credit cards when increasingly such services are offered at much lower costs by firms such as TransferWise, services like Alipay and Apple Pay, or simply by new currencies such as Bitcoin? On this point, we should note that in the 17 days that followed the launch of Apple Pay on the iPhone 6, almost 1% of Wholefoods’ transactions were processed using the new payment system. The likes of Apple, Google, Facebook and Amazon have grown into behemoths by upending the media, advertising retail and entertainment industries. Such a rapid take- up rate for Apple Pay is a powerful indicator which sector is likely to be next in line. How else can these tech giants keep growing and avoid the fate that befell Sony, Microsoft and Nokia? On their past record, the technology companies will find margins, and growth, in upending our countries’ financial infrastructure. As they do, a lot of capital (both human and monetary) deployed in the current infrastructure will find itself obsolete.
This possibility raises a number of questions – not least for Gavekal’s own investment process, which relies heavily on changes in the velocity of money and in the willingness and ability of commercial banks to multiply money, to judge whether it makes sense to increase portfolio risk. What happens to a world that moves ‘ex-bank’ and where most new loans are extended peer-to-peer? In such a world, the banking multiplier disappears along with fractional reserve banking (and consequently the need for regulators? Dare to dream…). As bankers stop lending their clients umbrellas when it is sunny, and taking them away when it rains, will our economic cycles become much tamer? As central banks everywhere print money aggressively, could the market be in the process of creating currencies no longer based on the borders of nation states, but instead on the cross-border networks of large corporations (Alipay, Apple Pay…), or even on voluntary communities (Bitcoin). Does this mean we are approaching the Austrian dream of a world with many, non government-supported, currencies?
4. Should we care about Europe?
In our September Quarterly Strategy Chartbook, we debated whether the eurozone was set for a revival (the point expounded by François) or a continued period stuck in the doldrums (Charles’s view), or whether we should even care (my point). At the crux of this divergence in views is the question whether euroland is broadly following the Japanese deflationary bust path. Pointing to this possibility are the facts that 11 out of 15 eurozone countries are now registering annual year-on-year declines in CPI, that policy responses have so far been late, unclear and haphazard (as they were in Japan), and that the solutions mooted (e.g. European Commission president Jean-Claude Juncker’s €315bn infrastructure spending plan) recall the solutions adopted in Japan (remember all those bridges to nowhere?). And that’s before going into the structural parallels: ageing populations; dysfunctional, undercapitalized and overcrowded banking systems; influential segments of the population eager to maintain the status quo etc…
With the same causes at work, should we expect the same consequences? Does the continued underperformance of eurozone stocks simply reflect that managing companies in a deflationary environment is a very challenging task? If euroland has really entered a Japanese-style deflationary bust likely to extend years into the future, the conclusion almost draws itself.
The main lesson investors have learned from the Japanese experience of 1990-2013 is that the only time to buy stocks in an economy undergoing a deflationary bust is:
a) when stocks are massively undervalued relative both to their peers and to their own history, and
b) when a significant policy change is on the way.
This was the situation in Japan in 1999 (the first round of QE under PM Keizo Obuchi), 2005 (PM Junichiro Koizumi’s bank recapitalization program) and of course in 2013-14 (Abenomics). Otherwise, in a deflationary environment with no or low growth, there is no real reason to pile into equities. One does much better in debt. So, if the Japan-Europe parallel runs true, it only makes sense to look at eurozone equities when they are both massively undervalued relative to their own histories and there are expectations of a big policy change. This was the case in the spring of 2012 when valuations were at extremes, and Mario Draghi replaced Jean-Claude Trichet as ECB president. In the absence of these two conditions, the marginal dollar looking for equity risk will head for sunnier climes.
With this in mind, there are two possible arguments for an exposure to eurozone equities:
1) The analogy of Japan is misleading as euroland will not experience a deflationary bust (or will soon emerge from deflation).
2) We are reaching the point when our two conditions – attractive valuations, combined with policy shock and awe – are about to be met. Thus we could be reaching the point when euroland equities start to deliver outsized returns.
Proponents of the first argument will want to overweight euroland equities now, as this scenario should lead to a rebound in both the euro and European equities (so anyone underweight in their portfolios would struggle). However, it has to be said that the odds against this first outcome appear to get longer with almost every data release!
Proponents of the second scenario, however, can afford to sit back and wait, because it is likely any outperformance in eurozone equities would be accompanied by euro currency weakness. Hence, as a percentage of a total benchmark, European equities would not surge, because the rise in equities would be offset by the falling euro.
Alternatively, investors who are skeptical about either of these two propositions can – like us – continue to use euroland as a source of, rather than as a destination for, capital. And they can afford safely to ignore events unfolding in euroland as they seek rewarding investment opportunities in the US or Asia. In short, over the coming years investors may adopt the same view towards the eurozone that they took towards Japan for the last decade: ‘Neither loved, nor hated… simply ignored’.
Most investors go about their job trying to identify ‘winners’. But more often than not, investing is about avoiding losers. Like successful gamblers at the racing track, an investor’s starting point should be to eliminate the assets that do not stand a chance, and then spread the rest of one’s capital amongst the remainder.
For example, if in 1981 an investor had decided to forego investing in commodities and simply to diversify his holdings across other asset classes, his decision would have been enough to earn himself a decade at the beach. If our investor had then returned to the office in 1990, and again made just one decision – to own nothing in Japan – he could once again have gone back to sipping margaritas for the next ten years. In 2000, the decision had to be not to own overvalued technology stocks. By 2006, our investor needed to start selling his holdings in financials around the world. And by 2008, the money-saving decision would have been to forego investing in euroland.
Of course hindsight is twenty-twenty, and any investor who managed to avoid all these potholes would have done extremely well. Nevertheless, the big question confronting investors today is how to avoid the potholes of tomorrow. To succeed, we believe that investors need to answer the following questions:
- Will Japan engineer a revival through its lead in exciting new technologies (robotics, hi-tech help for the elderly, electric and driverless cars etc…), or will Abenomics prove to be the last hurrah of a society unable to adjust to the 21st century? Our research is following these questions closely through our new GK Plus Alpha venture.
- Will China slowly sink under the weight of the past decade’s malinvestment and the accompanying rise in debt (the consensus view) or will it successfully establish itself as Asia’s new hegemon? Our Beijing based research team is very much on top of these questions, especially Tom Miller, who by next Christmas should have a book out charting the geopolitical impact of China’s rise.
- Will Indian prime minister Narendra Modi succeed in plucking the low-hanging fruit so visible in India, building new infrastructure, deregulating services, cutting protectionism, etc? If so, will India start to pull its weight in the global economy and financial markets?
- How will the world deal with a US economy that may no longer run current account deficits, and may no longer be keen to finance large armies? Does such a combination not almost guarantee the success of China’s strategy?
- If the US dollar is entering a long term structural bull market, who are the winners and losers? The knee-jerk reaction has been to say ‘emerging markets will be the losers’(simply because they were in the past. But the reality is that most emerging markets have large US dollar reserves and can withstand a strong US currency. Instead, will the big losers from the US dollar be the commodity producers?
- Have we reached ‘peak demand’ for oil? If so, does this mean that we have years ahead of us in which markets and investors will have to digest the past five years of capital misallocation into commodities?
- Talking of capital misallocation, does the continued trend of share buybacks render our financial system more fragile (through higher gearing) and so more likely to crack in the face of exogenous shocks? If it does, one key problem may be that although we may have made our banks safer through increased regulations (since banks are not allowed to take risks anymore), we may well have made our financial markets more volatile (since banks are no longer allowed to trade their balance sheets to benefit from spikes in volatility). This much appeared obvious from the behavior of US fixed income markets in the days following Bill Gross’s departure from PIMCO. In turn, if banks are not allowed to take risks at volatile times, then central banks will always be called upon to act, which guarantees more capital misallocation, share buybacks and further fragilization of the system (expect more debates along this theme between Charles, and Anatole).
- Will the financial sector be next to undergo disintermediation by the internet (after advertising and the media). If so, what will the macro- consequences be? (Hint: not good for the pound or London property.)
- Is euroland following the Japanese deflationary-bust roadmap?
The answers to these questions will drive performance for years to come. In the meantime, we continue to believe that a portfolio which avoids a) euroland, b) banks, and c) commodities, will do well – perhaps well enough to continue funding Mediterranean beach holidays – especially as these are likely to go on getting cheaper for anyone not earning euros!
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For $25 a year, Google will keep a copy of any genome in the cloud.
By Antonio Regalado on November 6, 2014
WHY IT MATTERS
Genome data on millions of people would lead to new medical discoveries and improved diagnostics.
Google is approaching hospitals and universities with a new pitch. Have genomes? Store them with us.
The search giant’s first product for the DNA age is Google Genomics, a cloud computing service that it launched last March but went mostly unnoticed amid a barrage of high profile R&D announcements from Google, like one late last month about a far-fetched plan to battle cancer with nanoparticles (see “Can Google Use Nanoparticles to Search for Cancer?”).
Google Genomics could prove more significant than any of these moonshots. Connecting and comparing genomes by the thousands, and soon by the millions, is what’s going to propel medical discoveries for the next decade. The question of who will store the data is already a point of growing competition between Amazon, Google, IBM, and Microsoft.
Google began work on Google Genomics 18 months ago, meeting with scientists and building an interface, or API, that lets them move DNA data into its server farms and do experiments there using the same database technology that indexes the Web and tracks billions of Internet users.
“We saw biologists moving from studying one genome at a time to studying millions,” says David Glazer, the software engineer who led the effort and was previously head of platform engineering for Google+, the social network. “The opportunity is how to apply breakthroughs in data technology to help with this transition.”
Some scientists scoff that genome data remains too complex for Google to help with. But others see a big shift coming. When Atul Butte, a bioinformatics expert at Stanford heard Google present its plans this year, he remarked that he now understood “how travel agents felt when they saw Expedia.”
The explosion of data is happening as labs adopt new, even faster equipment for decoding DNA. For instance, the Broad Institute in Cambridge, Massachusetts, said that during the month of October it decoded the equivalent of one human genome every 32 minutes. That translated to about 200 terabytes of raw data.
This flow of data is smaller than what is routinely handled by large Internet companies (over two months, Broad will produce the equivalent of what gets uploaded to YouTube in one day) but it exceeds anything biologists have dealt with. That’s now prompting a wide effort to store and access data at central locations, often commercial ones. The National Cancer Institute said last month that it would pay $19 million to move copies of the 2.6 petabyte Cancer Genome Atlas into the cloud. Copies of the data, from several thousand cancer patients, will reside both at Google Genomics and in Amazon’s data centers.
The idea is to create “cancer genome clouds” where scientists can share information and quickly run virtual experiments as easily as a Web search, says Sheila Reynolds, a research scientist at the Institute for Systems Biology in Seattle. “Not everyone has the ability to download a petabyte of data, or has the computing power to work on it,” she says.
Also speeding the move of DNA data to the cloud has been a yearlong price war between Google and Amazon. Google says it now charges about $25 a year to store a genome, and more to do computations on it. Scientific raw data representing a single person’s genome is about 100 gigabytes in size, although a polished version of a person’s genetic code is far smaller, less than a gigabyte. That would cost only $0.25 cents a year.
Cloud storage is giving a boost to startups like Tute Genomics, DNANexus, Seven Bridges, and NextCode Health. These companies build “browsers” that hospitals and scientists can use to explore genetic data. “Google or Amazon is a back end. They are saying, ‘Hey, you can build a genomics company in our cloud,’” says Deniz Kural, CEO of Seven Bridges, which stores genome data on behalf of 1,600 researchers in Amazon’s cloud.
The bigger point, he says, is that medicine will soon rely on a kind of global Internet-of-DNA which doctors will be able to search. “Our bird’s eye view is that if I were to get lung cancer in the future, doctors are going to sequence my genome and my tumor’s genome, and then query them against a database of 50 million other genomes,” he says. “The result will be ‘Hey, here’s the drug that will work best for you.’ ”
At Google, Glazer says he began working on Google Genomics as it became clear that biology was going to move from “artisanal to factory-scale data production.” He started by teaching himself genetics, taking an online class, Introduction to Biology, taught by Broad’s chief, Eric Lander. He also got his genome sequenced and put it on Google’s cloud.
Glazer wouldn’t say how large Google Genomics is or how many customers it has now, but at least 3,500 genomes from public projects are already stored on Google’s servers. He also says there’s no link, as of yet, between Google’s cloud and its more speculative efforts in health care, like the company Google started this year, called Calico, to investigate how to extend human lifespans. “What connects them is just a growing realization that technology can advance the state of the art in life sciences,” says Glazer.
Somalee Datta, a physicist who manages Stanford University’s largest computer cluster for genetics data, says that because of recent price cuts, it now costs about the same to store genomes with Google or Amazon as in her own data center. “Prices are finally becoming reasonable, and we think they will keep dropping,” she says.
Datta says some Stanford scientists have started using a Google database system, BigQuery, that Glazer’s team made compatible with genome data. It was developed to analyze large databases of spam, web documents, or of consumer purchases. But it can also quickly perform the very large experiments comparing thousands, or tens of thousands, of people’s genomes that researchers want to try. “Sometimes they want to do crazy things, and you need scale to do that,” says Datta. “It can handle the scale genetics can bring, so it’s the right technology for a new problem.”
Technology giant Google has taken the battle against illegal fishing online, with the company unveiling a tool in Australia on Friday that harnesses satellite data to track thousands of boats in real time.
A prototype interactive tool, which was developed in conjunction with environmental activists SkyTruth and marine advocacy group Oceana, was unveiled at the once-a-decade World Parks Congress in Sydney.
The tool is the latest salvo from environmentalists against illegal fishing, which is currently estimated by the Global Ocean Commission to cost the world economy up to U.S.$23.5 billion a year.
“While many of the environmental trends in the ocean can be sobering, the combination of cloud computing and massive data is enabling new tools to visualise, understand and potentially reverse these trends,” Brian Sullivan of Google’s Earth Outreach and Oceans section said.
The tool uses data points from the Automatic Identification System network, which picks up GPS broadcasts of a vessel’s location to map movements.
The prototype has tracked just over 3,000 fishing vessels, with a public tool set to be released down the track.
SkyTruth said the system, which will only monitor fishing vessels, would make activities usually invisible to the wider public easily viewable.
“So much of what happens out on the high seas is invisible, and that has been a huge barrier to understanding and showing the world what’s at stake for the ocean,” SkyTruth’s president and founder John Amos said.
“Satellite data is allowing us to make human interaction with the ocean more transparent than ever before.”
The Global Ocean Commission, an independent panel launched in February 2013, said evidence showed seas have been fished to dangerously low levels, with 90 percent of the world’s large fish stocks — such as tuna and swordfish — already gone.
The commission said one of the challenges in tackling illegal fishing was the lack of jurisdiction on the high seas.
While the high seas make up 64 percent of the ocean’s total surface area, they fall beyond national jurisdictions and suffer from a lack of oversight, the organisation said.
The World Parks Congress, which is being held in Sydney until November 19, has drawn thousands of delegates and is set to lay out a global agenda for protected areas for the next decade.
October 29, 2014
Google announced a new “Nanoparticle Platform” project Tuesday to develop medical diagnostic technology using nanoparticles, Andrew Conrad, head of the Google X Life Sciences team, disclosed at The Wall Street Journal’s WSJD Live conference.
The idea is to use nanoparticles with magnetic cores circulating in the bloodstream with recognition molecules to detect cancer, plaques, or too much sodium, for example.
There are a number of similar research projects using magnetic (and other) nanoparticles in progress, as reported onKurzweilAI. What’s new in the Google project is delivering nanoparticles to the bloodstream via a pill and using a wearable wrist detector to detect the nanoparticles’ magnetic field and read out diagnostic results.
But this is an ambitious moonshot project. “Google is at least five to seven years away from a product approved for use by doctors,” said Sam Gambhir, chairman of radiology at Stanford University Medical School, who has been advising Dr. Conrad on the project for more than a year, the WSJ reports.
“Even if Google can make the system work, it wouldn’t immediately be clear how to interpret the results. That is why Dr. Conrad’s team started the Baseline study [see “New Google X Project to look for disease and health patterns in collected data”], which he hopes will create a benchmark for comparisons.”
As part of the Baseline project, the Google X Life Sciences group has been developing related technology for wearable devices, to be worn by Baseline participants. The devices will collect data such as heart rates, heart rhythms, and oxygen levels.
For example, as KurzweilAI reported in January, a Google-designed contact lens uses a tiny wireless chip and miniaturized glucose sensor that are embedded between two layers of soft contact lens material.
The chip was originally intended to help people with diabetes as they try to keep their blood sugar levels under control.
Credit: The Wall Street Journal
Credit: The Wall Street Journal
Google wants to help people stay forever young with a new anti-aging campaign announced by their chief executive officer Larry Page.
Page said about the project that began last September: “We’re tackling aging, one of life’s greatest mysteries.”
Calico LLC , according to their website, “is a research and development company whose mission is to harness advanced technologies to increase our understanding of the biology that controls lifespan. We will use that knowledge to devise interventions that enable people to lead longer and healthier lives.”
Page said about the investment into Calico: “Illness and aging affect all our families. With some longer term, moonshot thinking around healthcare and biotechnology, I believe we can improve millions of lives.”
The team that makes up Calico includes:
- Arthur Levinson, chairman of the board at Apple
- Hall Barron former chief medical officer of pharmaceutical group Hoffmann-La Roche
- David Botstein, Princeton University genomics professor
- Cynthia Kenyon, researcher in biology and genetics at the University of California at San Francisco (UCSF)
- Robert Cohen, oncology researcher at Genentech
- Jonathan Lewis, executive with UCB Pharma
On the website, Calico is described as a group of “scientists from the fields of medicine, drug development, molecular biology, and genetics. Through our research we’re aiming to devise interventions that slow aging and counteract age-related diseases.”
Last year the question was asked by media : “Can Google solve death?”
Earlier this year, Google fundedeugenics venture 23andMe (23M) was still under review by the Food and Drug Administration (FDA) for their home genetics product that tests and diagnoses for mutations in the genome. In order to determine the genetic traits possible future children will inherit from their parents, clients have their saliva swabbed.
In addition, it was announced by Andrew Conrad, molecular biologist and lead researcher for Google X that the corporation has been behind the latest push by the tech corporation to get to know their users better – by collecting data on DNA in order to decipher what a healthy, normal human being should look like.
If Google X could analyze the DNA of enough participants, it is suspected that “prevention based treatment strategies” would allow for the possible removal of traits that cause those diseases such as heart disease, diabetes, cancer and neurological disorders.
Google X has been developing animal-inspired robots, self-driving cars and even “smart” contact lenses.
According to Ray Kurzweil, transhumanist visionary and engineering director at Google, this corporation is assisting in the inevitable conclusion that “computers liberate themselves from their masters will occur in our lifetime.”
This will become reality because of the movement to help Google understand human “natural language” because this “is the key to computers understanding everything.”
Kurzweil said: “My project is ultimately to base search on really understanding what the language means. When you write an article, you’re not creating an interesting collection of words. You have something to say and Google is devoted to intelligently organizing and processing the world’s information. The message in your article is information, and the computers are not picking up on that. So we would want them to read everything on the web and every page of every book, then be able to engage in intelligent dialogue with the user to be able to answer their questions.”