What I read this week: Brace yourself, volatility set to return with vengeance!

Hey there!

I begin this week’s column by exploring something you must have thought once in a while: how would it be to live in a cashless society? When shops and gas stations will have signs hanging to tell you “cash is no, no.” Possible? Read this first-hand account from a cashless society and how it feels like.

Also, a nice piece that about how machine learning can be used with a full body scanner to obtain much more accurate results than a doctor’s diagnosis. We all know, medicine is dominated by opinion. So are we looking at a future when AI will replace doctors?

Macquaire Research has come out with a report that says Calendar 2018 will be a year of decisions and consequences! Do read up and stay prepared.

Should be enough dope to engage your thought process over the weekend. Happy reading.

I reiterate that this is only a sampling of some of the best content I read through the week, with a dash of my own thoughts. Until next week…

Cashless society is coming
( Source: Swedish authorities fear "NEGATIVE SPIRAL" as society goes cashless 'TOO FAST' )

In 1660, Sweden’s Riksbank was the first central bank in the world to issue paper currency. In 2016, Sweden began to accelerate its transition from cash to digital currency.

A year later, in 2017, cash in circulation was plummeting and establishment economists celebrated the battle in the war on cash. Additionally, Riksbank was actively looking toward cryptocurrencies as potential government-backed money.

But now, in 2018, Swedish officials are worried that too much (or too little in this case) is a bad thing as "If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash.

As Bloomberg reports, Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments. But there’s a downside, since many people, in particular the elderly, don’t have access to the digital society.

“No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile. Last year, the amount of cash in circulation in Sweden dropped to the lowest level since 1990 and is more than 40 percent below its 2007 peak. The declines in 2016 and 2017 were the biggest on record. But the pace at which cash is vanishing has authorities worried. “One may get into a negative spiral which can threaten the cash infrastructure,” Mats Dillen, the head of the parliamentary review, said.

Riksbank Governor Stefan Ingves has said Sweden should consider forcing banks to provide cash to customers. In its annual report on Monday, the Riksbank said the question is what role it should play in a future with even fewer cash payments.

However, if you have any misguided notion that a cashless society is not coming, just keep telling yourself that every time you use a debit card, credit card or your phone for your next purchase. With the elimination of cash we effectively hand over our individual human sovereignty to the banks and the government.

Can AI replace doctors, someday?
( Source: Adapting machine learning for medicine )

Google’s AI algorithm predicts heart disease by scanning your eyes. They have used machine learning to accomplish what a doctor would do by traditional methods including blood work.

Medicine suffers from the same problem as financial analysis. It is dominated by opinion and that depends entirely upon (1) your experience and (2) the current situation. For example, a small child of about two was running a high fever. She was taken to the doctor who was flooded with flu patients. She was checked for the flu, found to be negative, and sent home.

Day three, the fever was still there. Again, the little girl was taken back to another doctor. The same thing took place. After day four, the fever persisted and once more she was taken back to a doctor and the same thing took place. Finally, the mother noticed she was not urinating and the child simply responded that it hurt. A fourth trip ended up admitting her to a hospital with a urinary infection that had by now started to impact her kidneys.

Medicine, like analysis, is dominated by opinion. If the doctor does not think of anything else to test, nothing takes place. Machine learning can be used with a full body scanner and much more accurate results can be obtained. We need a machine that will also do a full body ultrasound scan, a simple pinprick for a drop of blood, and the machine could come up with a lot more information at a far lower cost than what we see today.

Do sales managers tell the real story?
( Source: Sales Managers' Indexes )

The Sales Managers' Indexes provide the earliest monthly data on the speed and direction of economic activity in the fastest growing areas of the world: Africa, Asia and the America's.

Why the SMI's are needed? Businesses need growth. Unfortunately much of the world’s growth today derives from countries where economic data is entirely missing, hopelessly incomplete or just fabricated. The Economist highlighted the problem in relation to Africa, "Africa is the continent of missing data. Fewer than half of births are recorded; some countries have not taken a census in decades".

World Economics has recently highlighted (in Africa, Asia, and The America's) the large underestimate of most countries GNP data due to out of date base years and the unrecorded shadow economy.

The SMIs bypass all the data faults of official statistics by obtaining representative samples of replies from panels of salespeople specifically set up to monitor levels of activity.

World Economics comes out with Sales Managers index for major economies and the headline sales manager index for India has shown a surge since June 2017 which confirms escalation in business confidence and this should lead to better growth rising capacity utilization in the economy. The sales growth index and the market growth index pertaining to India also reflect stronger sales and improving profit margins of manufacturers. The business confidence index of sales manager index gained traction wherein perceptions of general economic situation improved with sentiments on income outlook improved reflecting better employment prospects.

2018: Year of decisions & consequences
(Source: | Inflationary note in a deflationary tune)
Calendar 2018 is the year of decisions and consequences and also the year when volatilities could return with vengeance. We look at whether the current landscape has transited from deflation to inflation and how the current regime is different from ’67 or ’87 period. In the 60’s, loose monetary policies did not trigger inflation until ’67-68 when inflation rates climbed to 5-6%. This was followed by an oil embargo, which ushered in a stagflationary period that lasted until Volcker’s Fed finally squeezed inflation out of the system.

From the late 1960s until well into 1980s, most equities were in secular bear market territory and correlation between rates and equities was negative due to inflation concerns. In ’87, U.S. fiscal & current account deficits crushed US$ and eventually bond and equity markets. However, late 90s environment underwent a radical change with a world of rapid financialization and persistently falling inflation and cost of capital.

The global de-regulation of product, labour and capital markets integrated massive supply of EM labour. Rates-equities correlation turned positive by mid-2000’s as deflation was the new bogeyman. Unlike these earlier periods, economies now are far more driven by asset prices; hence price discovery and volatility can easily destroy wealth impact and tip the world back into disinflation.

Today’s policies are equally loose and we have enormous excess reserves. G4+Switzerland central banks currently have an asset base exceeding US$16 trillion (or around 40% of GDP) and the hard money (excess reserves) alone amount to ~US$7.5 trillion providing limited ammunition to fight renewed disinflation while making liquidity withdrawals very dangerous. Disinflationary pressures remain strong; but late cycle stimulus could cause inflationary spike. Proponents argue that disinflationary pressures are behind us. As societies bump against capacity constraints and embark on late-cycle stimulus, inflation will be back, possibly as bad as in 1967/68.

However, in these volatile times, one has to be cautious with respect to the rising inflation currently on account of the rising commodity prices and the stimulus announced by some governments. With most of the central banks in the tapering mode, investors, especially bond investors need to be watchful in these volatile times. Over the longer term, it would be interesting to watch if the deflationary trend changes or it remains intact with interludes of inflationary breakouts.

Original Article

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