Artificial Intelligence and Universal Basic Income

Lately, I have been about AI (artificial intelligence), and pondering the long-term impact of this new “industrial revolution”. In the first cycle, and I think we are in it right now, AI will automate most of the tasks which require human intervention, but through technological revolution, have been easy to computerize (e.g. finance, accounting, law, medicine and diagnosis). Stage 2 will be when AI will start to wreak havoc on other industries when all of the easy fruit has been picked. I think the most immediate impact of AI should be felt in the financial industry, as computer should be able to automate most of the back office tasks easily, and without much due effort (as long as most of the forms are standardized etc).

More to follow …..

German soldier held over anti-migrant ‘assassination plot’

Arrest on grounds of suspicion of Preparation of a Serious Violent Offence Endangering the State

The GBA today, on the basis of an arrest warrant of the Invesitgative Judge of the Federal Court of Justice from 8th May 2017, ordered the arrest of the 27-year-old German citizen Maximilian T. The order was executed in Kehl by officers of the Federal Criminal Police Office.

The defendant is strongly suspected of preparing a serious violent offence endangering the state (§ 89 a Abs. 1 und Abs. 2 Nr. 2, § 25 Abs. 2 StGB) out of a right-wing extremist ideology and together with the already-arrested Franco A. and Mathias F.

The press office of the GBA will release an explanation to the media today at 14:30.

The arrest warrant lays out the following:

According to investigations, Franco A., Mathias F., and Maximilan T. planned an attack on the life of high-ranking politicians and persons of public interest that are active in a, from the defendant’s POVs, failed/wrong immigration and asylum policy. In particular, the defendants had created a list of possible victims including different categories. Among others it includes former President Joachim Gauck and Minister of Justice and Consumer Protection Heiko Maas. Franco A. was tasked with acting out the attack. For this purpose, he had registered as a Syrian refugee under an alias. Thus, the three defendants wanted to direct suspicion on refugee-applicants in Germany. During the planning, Franco A. received monetary assitance for asylum applicants, which he collected himself. The resulting abstences were covered up by Maximilian T., who excused Franco A. before his superiors. In preparation of the attack, the defendants aquired a pistol by the manufacturer Manufacture d’Armes des Pyrenees Francaise, Model 17, Caliber 7,65 mm Browning, which they first stowed away. In the middle of January, Franco A. took the weapon and stowed it in a disabled people’s toilet at the Vienna Airport where it was found by Austrian Police shortly after. During investigation, Franco A. and Mathias F. were ordered to be arrested by the Frankfurt State Attorney on 26th April 2017. The investigation has since been taken over by the GBA.

The attack by the three defendants was supposed to be viewed by the public as a radical-islamic terror act done by an accepted refugee. Especially concerning the continued public discussion of immigration and asylum politics a suspected terror attack by a registered refugee would have created special outrage and contributed to a general feeling of threat. Recognising this, this case is to be viewed as a crime pertaining to State Security of special importance (§ 120 Abs. 2 Nr. 1, § 74 a Abs. 1 Nr. 2, Abs. 2 GVG)

The defendant will today be brought before the Investigative Judge of the Federal Court of Justice who will explain to him the arrest warrant and decide over a possible investigative custody.

Link to the BBC

Home Capital Group (HCG.TO) – What is next?

Almost everyone is now aware of the Home  Capital Group’s debacle. The alternative mortgage lender, which operates our of Canada, has had its high-interest saving balances reduced from $1.4B to a mere 340 million within less than a week. I have been consuming a lot of articles about the company (see some links below), and it seems to me that this ‘bank run’ is solely due to the loss in confidence over the banks. Currently, as it seems, that the book is ‘healthy’ (as per the media), however, in my opinion (albeit I do not profess to be an expert in calling the timing of the markets), a 33% YoY increase in house prices is sign of a bubble. I imagine Home Capital has originated mortgages in the last year, and some of these mortgages would end up being ‘slayed’ in a down market, say if the market reverts to the price it was in 2016 (which is a 33% decrease!).

The other question is if there will be a bank run on the Canadian banks? Currently the Canadian big-6 banks are well capitalized, however, will this change in market sentiment move the inter-bank rates against the Canadian Banks? (think Greece / Portugal /Spain). We will find that out shortly!


Legal Experts question why Home Capital didn’t just write a cheque to mitigate the damages (FP)

Executive Summary of IMFs Global Financial Stability Report

It is a long report – but good read nonetheless.

Here is the executive summary for those who are interested:

Financial stability has improved in advanced economies

Financial stability has improved in advanced economies since the April 2015 Global Financial Stability Report. This progress reflects a strengthening macrofinancial environment in advanced economies as the recovery has broadened, confidence in monetary policies has firmed, and deflation risks have abated somewhat in the euro area. The Federal Reserve is poised to raise interest rates as the preconditions for liftoff are nearly in place. This increase should help slow the further buildup of excesses in financial risk taking. Partly due to confidence in the European Central Bank’s (ECB’s) policies, credit conditions are improving and credit demand is picking up. Corporate sectors are showing tentative signs of improvement that could spawn increased investment and economic risk taking, including in the United States and Japan, albeit from low levels.

Risks continue to rotate toward emerging markets, amid greater market liquidity risks

Despite these improvements in advanced economies, emerging market vulnerabilities remain elevated, risk appetite has fallen, and market liquidity risks are higher. Although many emerging market economies have enhanced their policy frameworks and resilience to external shocks, several key economies face substantial domestic imbalances and lower growth, as noted in the October 2015 World Economic Outlook (WEO). Many emerging market economies relied on rapid credit creation to sidestep the worst impacts of the global crisis. This increased borrowing has resulted in sharply higher leverage of the private sector in many economies, particularly in cyclical sectors, accompanied by rising foreign currency exposures increasingly driven by global factors. This confluence of borrowing and foreign currency exposure has increased the sensitivity of these economies to a tightening of global financial conditions (see Chapter 3). As emerging market economies approach the late stage of the credit cycle, banks have thinner capital cushions, while nonperforming loans are set to rise as corporate earnings and asset quality deteriorate. In China, banks have only recently begun to address the growing asset quality challenges associated with rising weaknesses in key areas of the corporate sector. These developments in emerging market banking systems stand in contrast to those in advanced economies, where banks have spent the past few years deleveraging and repairing balance sheets, raising capital, and strengthening funding arrangements. Against a challenging backdrop of falling commodity prices and weaker growth, several emerging market sovereigns are at greater risk of losing investment-grade ratings in the medium term. Pressures on sovereign ratings could intensify if contingent liabilities of stateowned enterprises—with a large and rising share of emerging market corporate bond issuance—have to be assumed by the sovereign, for example, from firms in the oil, gas, and utility sectors.

Policymakers confront a triad of challenges

The baseline outlook for financial stability, consistent with the October 2015 WEO, is characterized by continuing cyclical recovery, but with weak prospects for medium-term growth in both advanced economies and emerging markets. In advanced economies, improvements in private balance sheets and continued accommodative monetary and financial conditions have spurred a cyclical recovery, but the handover to higher levels of self-sustaining growth is incomplete. Emerging markets face substantial challenges in adjusting to the new global market realities from a position of higher vulnerability. Successful normalization of financial and monetary conditions would bring macrofinancial benefits and considerably reduce downside risks. This report analyzes the prospects for normalization according to three scenarios: the baseline, an upside scenario of successful normalization, and a downside scenario characterized by disruptions in global asset markets. Against this backdrop, the global financial outlook is clouded by a triad of broad policy challenges in evidence over the past several months:

Emerging market vulnerabilities—As examined in the WEO, growth in emerging markets and developing economies is projected to decline for the fifth year in a row. Many emerging markets have increased their resilience to external shocks with increased exchange rate flexibility, higher foreign exchange reserves, increased reliance on FDI flows and domestic currency external financing, and generally stronger policy frameworks. But balance sheets have become stretched thinner in many emerging market companies and banks. These firms have become more susceptible to financial stress, economic downturn, and capital outflows. Deteriorating corporate health runs the risk of deepening the sovereign-corporate
and the corporate-bank nexus in some key emerging markets. China in particular faces a delicate balance of transitioning to more consumption-driven growth without activity slowing too much, while reducing financial vulnerabilities and moving toward a more market-based system—a challenging set of objectives. Recent market developments, including slumping commodity prices, China’s bursting equity and margin-lending bubble, falling emerging market equities, and pressure on exchange rates, underscore these challenges.
• Legacy issues from the crisis in advanced economies—High public and private debt in advanced economies and remaining gaps in the euro area architecture need to be addressed to consolidate financial stability, and avoid political tensions and headwinds to confidence and growth. In the euro area, addressing remaining sovereign and banking vulnerabilities is still a challenge.
• Weak systemic market liquidity—This poses a challenge in adjusting to new equilibria in markets and the wider economy. Extraordinarily accommodative policies have contributed to a compression of risk premiums across a range of markets including sovereign bonds and corporate credit, as well as a compression of liquidity and equity risk premiums. While recent market developments have unwound some of this compression, risk premiums could still rise further. Now that the Federal Reserve looks set to begin the gradual process of tightening monetary policy, the global financial system faces an unprecedented adjustment as risk premiums “normalize” from historically low levels alongside rising policy rates and a modest cyclical recovery. Abnormal market conditions will need to adjust smoothly to the new environment. But there are risks from a rapid decompression, particularly given what appears to be more brittle market structures and market fragilities concentrated in credit intermediation channels, which could come to the fore as financial conditions normalize (see Chapter 2). Indeed, recent episodes of high market volatility and liquidity dislocations across advanced and emerging market asset classes highlight this challenge.
Strong policy actions are needed to ensure “successful normalization”

The relatively weak baseline for both financial stability  and the economic outlook leaves risks tilted to the downside. Thus, ensuring successful normalization of financial and monetary conditions and a smooth
handover to higher growth requires further policy efforts to tackle pressing challenges. These should
include the following:

• Continued effort by the Federal Reserve to provide clear and consistent communication, enabling the smooth absorption of rising U.S. rates, which is essential for global financial health.
• In the euro area, more progress in strengthening the financial architecture of the common currency to bolster market and business confidence. Addressing the overhang of private debt and bank nonperforming loans in the euro area would support bank finance and corporate health, and boost investment.
• Rebalancing and gradual deleveraging in China, which will require great care and strong commitments to market-based reforms and further strengthening of the financial system.
• More broadly, addressing both cyclical and structural challenges in emerging markets, which will be critical to underpin improved prospects and resilience.
Authorities in emerging markets should regularly monitor corporate foreign currency exposures, including derivatives positions, and use micro- and macroprudential tools to discourage the buildup of excessive leverage and foreign indebtedness.
• Safeguarding against market illiquidity and strengthening market structures, which are priorities, especially in advanced economies’ markets.
• Ensuring the soundness and health of banks and the long-term savings complex (for example, insurers and pension funds), which is critical, as highlighted in the April 2015 GFSR.


With bold and upgraded financial policy actions detailed in the report, policymakers can help deliver a stronger path for growth and financial stability, while avoiding downside risks. Such an upside scenario would benefit the world economy and raise global output 0.4 percent above the baseline by 2018. Further growth-enhancing structural reforms, detailed in the WEO, could bring additional support to growth and stability.

Full report here.

Bull Market or Bear Market

Long-term valuation analysis suggests that we are still working through the aftermath of the highest level of stock market valuation in history — the peak of the tech bubble in 2000 — and that this workout process will take at least another five to ten years.

What’s Going On in Your Brain? Common Investor Biases and Where They Come From

In recent decades, psychologists, economists, and neuroscientists have worked together to understand how our behaviors depart from the standards of normative economic theory and why exactly we have a proclivity to do so.

(German) Leftists demand 100 percent tax on the rich

It seems that taxing the rich is the new norm, or the idea of it anyways. Per the German news source, the German leftist party is considering a 100% tax on anyone making over 500,000.

If anyone has read any economics course, or has common sense, would see why this would be a terrible mandate. Also, what is not clear is that if it only applies to people? And how much is corporate tax is going to be affected by the mandate. However, a 100% taxation on income after a certain threshold will discourage hardworking and geniune people from working and creating social value through their businesses. There is limited data on how many persons make such money.  It is to be noted that it may work some very smart people from joining specific area of work. For example, if the same mandate is applied to income from financial institutions (or capped to per say a million euros), it will actually drive smart people to other industries (small businesses, technology), which may create increased value in socity as compared to banks.

Excerpt from the aricle:

The party paper said the total tax on those taking home over €40,000 per month would be used to fund social welfare and investing in the country’s future.

“Explosive inequality is threatening democracy,” said co-leader Bernd Riexinger. “I call capping income at half a million euros a democracy tax.”

The upcoming campaign for Germany’s election in September was going to be one focused on wealth redistribution, said Riexinger.


You can read the full article here.