Welcome to our 125th edition. Here’s what we put in our holiday basket this week:
- The ongoing saga of innovation on the trading floor
- Politicians need AI gurus like Cédric Villani
- Sandhya Krishnamurthy on “belief-alignment” investing
- Shakespearean financings; Vanguard cuts a deal with Raisin
- Smart beta warnings; Airbnb’s new user; Big Orange battles
- Rebank meets The FR; HBS’s P2P lending report; Stack Overflow’s survey
- Starbucks to buy WeWork?; 23andMe’s Lexus deal is a hit
Alexa, is my institutional sales job safe?
In the French comedy Le Dîner de Cons, every guest must bring along a dimwit to an “idiots dinner” for the purpose of crowning a champion imbecile at the evening’s end. This dark comedy came to mind recently when we found ourselves debating the implications of JP Morgan’s decision to bring Amazon’s Alexa to the trading floor. Our fellow debaters were members of the tech-employment optimism camp who buy into the idea that existing institutional professionals will be shinier and happier thanks to tech, not fewer in number. Perhaps arguments in favor of this perspective are that Wall Street comp is up this year and optimism abounds. And maybe we were the idiot at the table for drawing misplaced parallels to when the NYSE floor used to teem with people and sales trading desks were overflowing. To further demonstrate our stupidity, we pointed out that it’s not just equity personnel poised to benefit from tech. For example, UBS just announced that it hired an electronic trading guru to develop algorithms to trade odd lots of investment grade bonds. In Japan, meanwhile, Mizuho and IBM Research recently unveiled their new neural network technology to forecast market trends (more great news for humans). Sarcasm aside, tech’s transformation of institutional businesses is a good thing for the industry’s future and its shareholders, but we just don’t see how software will lead to lots of juicy new non-engineering jobs paying six or seven figures. Of course, there are still ways to make a great living at a financial institution. A few folks still make a ton of money in the fax machine sector too, but that doesn’t mean it’s a good long-term career bet. Then again, what do we know? Maybe we’re just an April fool.
Can Lady Gaga save the world from tomorrow’s AI oversteps
Speaking of April fools, Nvidia held its GPU developer conference this week, and we felt rather stupid in our inability to understand the finer points of its newly announced DGX-2 system, or its new Quadro GV100 Volta-Powered graphics with RTX real-time ray-tracing wizardry. But after taking a step back and thinking about how Nvidia products are driving advances in machine learning and AI, we then turned our attention back to the Facebook fiasco. Even if you’re not a tech wizard, you can grasp the basics of how the company put growth above safety and data security. But when you think about the hardware being cooked up by Nvidia, and look at the research advances being made by Google’s Deep Mind and Brain and Facebook’s FAIR, we think it’s safe to say that: a) Enormous sums of money are being invested into AI; b) Very few people on the planet really understand the risks/rewards associated with what these entities are doing; and c) You can probably count on one robotic hand the number of influential public policy influencers who get it. One of those people is France’s Cédric Villani, known affectionately as “the Lady Gaga of math.” This week, he unveiled his comprehensive new report on AI. Hopefully, some aspiring Gagas in the US will read it.
Can advisors benefit from the rise of “belief-alignment” investing?
“It’s safe to say that many of the people who have taken to the streets in recent days also have investment accounts.” That’s the perspective offered to us by Sandhya Krishnamurthy, who in a new opinion piece for The FR utilized the current politically charged environment to point out the challenges and opportunities for financial advisors to leverage technology to create portfolios with greater “belief-alignment.” In doing so, advisors (both human and digital hybrids) can demonstrate that they truly understand their clients in ways that straight automated solutions or old school advisors will find hard to match.
To be or not to be public.
Whether ’tis nobler in the mind to suffer the slings and arrows of public shareholders (See Docusign’s S-1) or take arms against that outrageous fortune by staying private indefinitely (See news of Credit Karma’s deal to take in $500 million from Silver Lake)... that is the question. Also, on a less iambic front, freemium meditation app Calm raised $25 million, and Root insurance raised $51 million to root out good drivers. Also, Chubb took a stake in Bunker to further the start-up’s development of gig worker policies, and last but not least, Microloan platform Branch just raised a hefty $70-million Series B to expand beyond Africa into India.
Vanguard continues its push into Europe with Raisin.
The chancellor of passive investing has cut a deal with Europe’s leading deposit marketplace provider. For Vanguard, this deal provides another way to penetrate Europe. For Raisin, which has heretofore focused on savings products, the deal gives the Berlin-based start-up a chance to broaden its scope.
Smart beta institute warns about smart beta products.
There’s no denying that smart beta innovation is one of the most important developments in the drive to make index investing sexy. But concerns are growing that “second-order” risks and exposure are not being accounted for. In fact, a prominent smart beta expert has joined the chorus of the concerned.
How about an Aztec-inspired henley to go with that room?
This week, retailer Marine Layer announced that in addition to selling shabby chic shirts at posh prices, it’s slouching its way onto Airbnb’s platform by offering rooms for rent that evoke Jim Morrison’s one-time Hollywood bungalow. Marine Layer’s CEO added, “We’re in an age where the traditional rules of retail and apparel don’t apply anymore, and so brands have to think about new and different ways to connect with their customer.” Groovy, man.
The unhealthy battle of the Big Oranges.
On Thursday, President Orange took another shot at Big Orange by bemoaning the company’s use of the US Postal Service as its delivery boy. In an ironic twist following Trump’s remarks, the ex-CEO of Walmart backed Trump’s assertion and launched a salvo against Amazon’s predatory practices. Instead, the two men should have directed their ire toward our nation’s health care cost crisis, which, as this GAO report shows, is the core financial challenge facing the post office. They could have also noted a Thursday story in The Wall Street Journal indicating that Walmart is looking to buy Humana, because healthcare — more than Amazon or software — is truly eating the world.
Rebank and The FR: We’ve been big fans of Will Beeson’s UK-based Rebank podcast, which takes a global perspective on the forces shaping the fintech revolution. That’s why The FR’s Gregg Schoenberg was excited to speak with him on the record about UBI, financial media and the politics-financial innovation connection.
What’s the economic meaning of Roseanne’s return?: For an interesting analysis of what Roseanne Barr’s return to TV says about America’s cultural and economic situation, we’d suggest checking out a recent podcast from social conservative star Ben Shapiro. We disagree with much of what he says, but we think it’s a great listen nevertheless.
Marketplace lending adverse selection: “If the sophisticated investor picks all the good fruit, the unsophisticated investor will do poorly and [potentially] leave the platform.” That’s the gist of a new HBS working paper by Boris Vallee and Yao Zeng.
What a developer wants?: Over 100,000 developers took 30 precious minutes out of their days to dish to Stack Overflow on their favorite technologies, career preferences and coding ethics.
AI firms will increasingly compete against consulting firms: As a terrific report in The Economist points out, generalist consultancies are especially vulnerable to AI and machine learning solutions providers.
THE RUMOR MILL
Rumors came fast and furious this week.
Starwork?: This week, we heard a doozy that Starbucks may be preparing a bid to buy WeWork. The new entity, purportedly to be named “StarWork,” would address flaws in the models of the two companies: Starbucks charges a lot for coffee but nothing to people who linger in its stores all day, whereas WeWork charges a lot for space but offers unlimited free coffee and beer. Meanwhile, in the burgeoning world of commission-free brokerage, we’ve heard that two start-ups are now planning to use recent equity infusions to begin paying retail customers to trade. “Paying 25 cents per trade to customers is the new free,” one CEO told us. And finally, check out the highly successful partnership between Lexus and the personal genomics company 23andMe. Who knew that licking a steering wheel could be so fun?
QUOTE OF THE WEEK
“The first of April is the day we remember what we are the other 364 days of the year.”
~ Mark Twain