What if AI tells us things we don’t w ant to hear?

Friday, 22 March 2024

[8 min read]

Dear Reader,

The media is awash with fears of what AI might do.

Mass unemployment, world domination, a war against machines…and plenty more all feature prominently.

I’m growing increasingly worried about the opposite outcome.

In the past, I’ve pointed out that AI is about as likely to save us as is it so kill us all.

For example, it could spot the asteroid coming our way, or come up with a vaccine that actually works for the next pandemic.

We’ve also discovered that AI is about as biased as the people who program it.

The refusal of one AI program to depict historical characters with skin that’s a whiter shade of pale made headlines…on social media.

But today, it’s time for a different angle.

One that’s even more awkward and threatens to destabilise culture and society as we know it. Not to mention financial markets…

Humans are fallible too

The ESG narrative which held financial markets for ransom for years has collapsed. ESG funds and commitments to ESG charters are falling by the wayside.

The implosion has exposed that ESG was nothing more than yet another financial fad.

It’ll take its place alongside the Tulip Bubble, the South Sea Bubble, the Mississippi Bubble, the hydrogen bubble, the tech bubble, the housing bubble, another hydrogen bubble and so many others.

My question to you is whether AI would’ve gone along with the ESG mania. Or might it have warned us that investors are deluding themselves, once again?

You’re probably not convinced AI could escape the grip of financial fads.

Isn’t it just a product of its data and programming? Wouldn’t those get caught up in the bull market, just as humans do?

But I can’t help wondering whether AI might not have the ability to be a little more far sighted and boring.

I mean, you have to be a stodgy old fella like I am (by disposition) to avoid getting caught up in such investment fads. And I get the impression that AI might fit the bill. Especially if it is asked to have a long enough memory.

How many books, articles, podcasts and videos about irrational exuberance are there? How much hindsight and regret are published for AI to take into account?

How many warnings about overvalued stocks might AI interpret as being rather relevant to the latest financial fashion?

AI does have one advantage…

AI doesn’t suffer from greed or fear

It doesn’t have risk aversion, nor experience Fear of Missing Out (FOMO). It could, by its very nature, avoid the emotions that make investors so gullible.

Do you think AI might’ve figured out just how hollow the China boom was a year ago?

Back when the world was preparing for the grand reopening of a locked down nation.

The story dominating financial markets back then was that China’s reemergence would send commodity prices soaring…and commodity stocks roaring.

AI might’ve scanned economic data and analysed proxies such as cell phone usage to estimate the true state of the Chinese economy.

And it might’ve warned everyone that the Aussie dollar was about to tank, not boom.

Might AI have warned us that the pandemic models were a bit shoddy?

It could’ve highlighted some of the questionable assumptions.

It’s might’ve pointed out to a layman that the evidence for masks and social distancing didn’t really exist, as has since been admitted.

It could’ve outright contradicted governments during a global health emergency.

Can you imagine what this would’ve caused?

Could AI have identified the inflationary spike in real time, a few months before central bankers even considered it possible?

I’m not sure what the answers to all these questions might be.

Perhaps AI as it exists in practice is already too politically and ideologically biased to be honest about such things.

I suspect it has a firm opinion about climate change, for example. One that comes pre-programmed. Not one that it derives from the data.

But even then it could be used to exposed some awkward truths.

What would an honest AI warn us about now?

Sure, AI is likely to be biased towards green energy. But what if it ran the maths and concluded that there isn’t going to be enough green energy to keep the lights on?

Especially if we continue to phase out fossil fuels at the pace we’re going. If there just aren’t enough sources of green energy coming online and in the pipeline, what would the implications be if everyone with a computer knew about it?

Could you imagine the political and economic chaos this would cause? If a fair and independent analysis by AI concluded we’re steering towards energy shortages imposed by governments, there’d be uproar.

What if AI figured out that the energy grid which needs to be built to make renewable energy viable would be impossibly expensive?

Would people still back green energy if they realised just how much money needs to be spent to make ‘free’ energy plausible?

What if AI alerted the world to the fact that we don’t have enough resources to build a Net Zero world, making Australia’s climate commitments little more than a very expensive form of virtue signalling?

What if AI concluded that the only energy mix which makes sense is nuclear power dominant, because having a grid’s worth of backup power to cover for intermittent power sources just isn’t economical?

AI could reveal which emperor have no clothes and which is warmly dressed for winter

For all I know, AI points out the precise opposite to what I suspect it would conclude in the absence of any bias. And perhaps it could be bent to conclude whatever its programmers decide.

Although teaching an AI program to defy maths would be hard to hide. And wouldn’t the very need to pre-program AI’s conclusions be rather revealing? You don’t need to if the energy transition makes sense…

It all makes me wonder what elections and political campaigns will look like in the future. If every voter can ask AI about the viability of politicians’ political promises, and how many they’ve broken so far in their career, would anyone ever get elected?

But perhaps all this is just a bit too vague. It’s not like social media came out of nowhere to decide the 2016 election of President Trump. Not to mention Brexit. No, I’m sure you have nothing to worry about, for now.

Instead, you should be taking the time to discover how companies are beginning to use AI to radically raise their profits. But not all companies have the same opportunity. Find out which ones will cut costs and raise revenues using AI tools here.

Until next time,

Nick Hubble,
Editor, Strategic Intelligence Australia

Nick Hubble found us at Fat Tail Investment Research in 2010 after a stint inside Wall Street’s most notorious bank, Goldman Sachs, during the 2008 GFC. That’s where he saw the true nature of the investment banking business. Since then, he’s been the editor of the Daily Reckoning Australia and the UK-based Fortune & Freedom and Gold Stock Fortunes.

He’s delighted to work as Investment Director and Editor for Jim Rickards’ Strategic Intelligence Australia. Here he helps turn Jim’s big-picture views into specific actionable advice and ideas for Australian investors.

[3 min read]

‘I have lived in one house in Baltimore for nearly 45 years. It has changed in that time, as I have—but somehow it still remains the same… It is as much a part of me as my two hands. If I had to leave it, I’d be as certainly crippled as if I lost a leg.’

H.L. Mencken

The first day of spring! And into its fires we cast our winter garments of gloom and despair. The bushes are budding. The flowers are blooming. The grass is growing.

The patterns remain.

Spring follows winter. Always has. Inflation and bankruptcy follow excess spending. And, if they are allowed to do so, governments are taken over by scoundrels.

We interrupt our regularly scheduled programming with a funny report from our hometown. Business Insider:

‘The city of Baltimore will sell more than 200 city-owned abandoned homes to residents starting at just $1 each in an effort to revive some of its roughest neighborhoods.

‘The Maryland city's crime rates have led to a surplus of vacant homes in certain neighborhoods. According to the city, there are about 15,000 abandoned properties in Baltimore.

‘The city is offering home repair grants of $50,000 to individuals who are pre-approved for a construction loan, Bloomberg reported.’

The trouble is, most of the houses that the city is selling are not worth a dollar. We speak from experience.

Home Sweet Home

We began our business career in Washington. But Washington, in the 1970s, was already becoming expensive. And the stench of politics already made life in the city disagreeable.

Baltimore, meanwhile, was cheap. Quirky. Funky. Grand old houses sold for $25,000. (We bought one and lived in it for 10 years.) The city also sold derelict commercial property. So, we bought two small retail shops, 3 floors, side by side, for $200. We then fixed them up…and set up shop for what was to grow into our publishing business.

The problem then, as now, was not the bricks and mortar…it was not the plumbing or the electricity…it was not even the potholed streets and lackadaisical trash collection. The problem was the neighbourhood.

You can fix up a house. Or an office building. But if the neighbourhood is a dump, it’s never going to be a nice place to work or live. Our house was in a neighbourhood that was built for the largely-Jewish merchant class back in the 1860s-1880s. The houses had high ceilings, heavy woodwork, and elegant mouldings. They were wide with four floors, often with an additional basement apartment. But the bourgeoisie moved out in the mid-20th century. The houses were cut up into apartments…often clumsy, awkward places…and then lived in by people who failed to appreciate the grace and charm of the architecture.

What an adventure it was, restoring the house to its former glory! We scraped. We painted. We plastered. We took down the additions and make-shift walls and turned it back into a family home.

But the neighbourhood remained much as it was – dirty, noisy, and dangerous. (We joked that after we left we needed to put on a CD at night, with gunshots and police sirens, so the children would be able to sleep.)

Diversity, Home Equity, Inclusion

We were hoping for ‘gentrification’. That is, we hoped that the neighbourhoods would get better, as more and more people moved in. Drawn by the low prices, houses would be repaired, shops and businesses would open up, and life would become safer and more pleasant for everyone.

In the 1980s, it seemed – for a while – that we might have been right. We were ‘pioneers’…homesteading in a Baltimore ghetto and looking forward to a brighter future. But whatever ‘gentrification’ we were imagining was short-lived. After a few years, many of the homesteaders gave up and moved to the suburbs. Some ‘pioneering’ couples – perhaps from the stress of the situation – broke up and moved on. As a young family, with a start-up business…little money, but much energy and enthusiasm… we were able to stick it out for about a decade. Then, we got out too, in the early ‘90s.

But what is funny about Baltimore’s current effort to sell its derelict hovels for $1 is the way city politics have degenerated. We see in the news that the movers and shakers are worried that the program won’t address the pressing issues of ‘diversity and equity.’ It’s not enough that someone might be able to turn a wreck of a house into a nice place to live; today, that person has to be the right colour.

And on the TV news this morning, a city official worried that the program might lead…would you believe it…to ‘gentrification.’ What? People might fix up their houses? They might clean up the streets? They might open cafes and yoga studios? They might demand better police protection and better schools? Horrors!

Yes, the city fathers are not concerned that the $1 house sales will fail to improve the city…but that they might succeed!

Inside Job

“It is all a scam,” says a well-informed, local source. “The city administrators and honchos are in it for themselves. They don’t really expect a new wave of pioneers who will succeed in ‘gentrifying’ Baltimore’s crime-ridden slums. And they don’t actually want real, independent homeowners who build genuine, safe neighbourhoods. Instead, the insiders angle for grants and contracts…money from the city or from the federal government. They will do a big development of ‘affordable’ housing…favouring their own clients and political donors…and make money for themselves. But they’ll never create a decent neighbourhood. That has to be done by the people who live in them.”

We moved out of the ghetto in the mid-90s. Our house – still grand, and in better shape – sold for about what we had invested in it…not counting the ‘sweat equity.’ Our business moved to a better address too. We had paid $200 for the two buildings and invested about $70,000 to make them serviceable. We sold them in the early ‘90s for a total of $67,000.

A learning experience.

Regards,

Bill Bonner,
For Fat Tail Daily