David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Donald Trump's Path-Independent Theory of Mind

    Here is this interesting article on the President’s state of mind by Cathy O’Neil:

    People have been discussing how Donald Trump interacts with other humans, guessing at the extent to which he is capable of anticipating or understanding how they think. Some believe he has no such "theory of mind." I disagree: He has one, but it’s path-independent.

    Remember when he thought people would like the fact that he’d fired FBI Director James Comey? Or the multiple times when he changed his story on why he did something? Those are the tell-tale signs.

    Most people, when they try X as an explanation, won’t try “not X” afterwards, for the simple reason that they know their audience will know they were either lying before or they’re lying now. But Trump will try stuff until one of his attempts “works,” defined as eliciting approval. He's path-independent, in the sense that he's completely unconstrained by his previous words and actions. If neither "X" nor "not X" works, he'll assume that it's his audience that is being irrational.

    In a prior column, I discussed the notion that Trump behaves like a machine learning algorithm. Well, his path-independent theory of mind fits perfectly into that metaphor.

    When Google is trying some new shade of blue in the background of their ads, they will perform what’s called an “A/B test” to see what generates more clicks. If more people go for the ad with a lighter shade of blue, they will stick with it. What they won’t do, critically, is consider the possibility that their audience liked the light shade of blue only because it came after the darker shade. They will assume that the audiences are independent of each other, constantly refreshed and “new."

    The same approach might have worked well for Trump as a businessman. He probably would have encountered a wide range of scenarios: For every deal that went through, dozens might have failed. So trying X one day and Y the next would be like a real science experiment. Over time, he might develop pattern recognition, figuring out which tactic works best in certain kinds of situations. I assume that’s where he learned to put pressure on business partners for unreasonable terms and to demand oaths of loyalty from his employees.

    Similarly, when Trump was campaigning, he actually did have a fresh audience on a daily basis. He could try out new things while re-using things that worked previously in similar situations, honing his craft with the direct and immediate feedback that he craves. His audience, in the context of a rally, was being refreshed constantly, just like Google’s ad customers.

    I’d argue that Trump's path independence operates on multiple levels. It's evident at a meta-political level when he takes a stab at sweeping campaign promises that he never intends to fulfill. It's also visible at the micro level, even within a given sentence: In his very strange recent interview with The Economist, for example, he kept attempting to adjust his message to obtain approval from his interviewers. He keeps things vague, and then pokes his way into a given explanation, but leaves himself room to change direction in case he senses disapproval.

    It doesn’t always work for him. That said, he probably can’t act any other way. Consistency has no attraction for him, because he is fundamentally principle-free.

    Trump's problem now is that the audience isn’t refreshing. It’s all of us, nationwide and globally. We remember what he said and did yesterday. We notice when he changes his story, and we’re not amused. Meanwhile, he’s left truly confused as to why things aren’t working out in his favor.

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    After Her Election Victory, Theresa May Must Develop an Economic Programme

    Just as the Labour Party has recently moved to the left, so Mrs May has moved, at least presentationally, towards the centre, and in some respects to the left of centre. This seems curious, unless you give importance to the ambition of supplanting the Labour Party as the natural party of government in just about all parts of the country. But what is the point of supplanting the Labour Party if in order to do this you have to become the Labour Party?

    I am suspending judgment. We are in an electioneering phase, when politicians are liable to say extraordinary things. Mrs May would be well advised to keep her economic and financial policy prognostications as vague as possible. In particular, she should avoid making expensive spending promises that use up fiscal room for manoeuvre, and she should avoid restricting the Chancellor of the Exchequer’s options on tax by making pledges not to raise one sort of tax or another.

    In that regard, last week’s manifesto was just about acceptable, despite some continuing guarantees on the state pension, the re-affirmation of “free at the point of use” for the NHS, and the pledge not to raise the rate of VAT.

    But some ideological issues need to be straightened out. There seems to be a presumption in Mrs May’s circle that government intervention is good for “the many”, whereas markets are good only for “the few”. This presumption is completely wrong. When markets work well they work for everybody, especially for people at the bottom end of the income distribution, who lack the contacts and sharp elbows to further their interests in a system dominated by controls and rationing. Markets give them power and choice.

    Of course, markets do not always work well. And this should provide the defining theme of Mrs May’s new government. But there are many parts of the economy where what we need is not less of the market but more, including in the provision of health and education services, especially for the “JAMs”, the “Just About Managing”.

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    RBI Board Members, Rating Agencies To Advise On Resolution Of Large Accounts

    This article by Vishwanath Nair for Bloomberg may be of interest to subscribers. Here is a section:

    On 5 May, 2017, the President of India cleared an ordinance proposed by the central government amending the Banking Regulation Act, giving the RBI greater powers to deal with stressed assets. The amendment was considered to be necessary to help resolve nearly Rs 10 lakh crore in stressed loans in the Indian banking sector. Through the Ordinance, the RBI hopes to speed up decision making which has been stuck due to the reluctance of bankers to take tough calls.

    Immediately after the government’s ordinance was released, the RBI too released guidelines to allow the use of S4A and strategic debt restructuring (SDR) schemes as part of the corrective action plan (CAP) devised by joint lender forums (JLFs). The regulator also revised the minimum threshold to approve a CAP to 60 percent by value of the loan and 50 percent by the number of banks in the JLF. Banks that did not want to adhere to the JLF decisions were asked to leave the JLF by selling their loan exposure.

    The framework released on Monday will likely be followed by operational guidelines. Key to these guidelines will be triggers used to invoke a specific course of action such as initiating bankruptcy proceedings.

    Creating committees and expanding the size and scope of the OC seem like good measures. However, we must remember that the OC is only a group that checks for compliance. The key is still resolution, for which the RBI needs to come out with a clear strategy.

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    If you bought $100 of bitcoin 7 years ago, you'd be sitting on $75 million now

    This article from CNBC highlights the current spate of excitement about bitcoin. Here is a section:

    On May 22, 2010, Hanyecz asked a fellow enthusiast on a bitcoin forum to accept 10,000 bitcoin for two Papa John's Pizzas. At the time, Hanyecz believed that the coins he had "mined" on his computer were worth around 0.003 cents each.

    Bitcoin mining involves solving a complex mathematical solution with the miner being rewarded in bitcoin. This is how Hanyecz got his initial coins.

    The cryptocurrency has many doubters as it continues to be associated with criminal activity, but it has still seen a stunning rally. Here are two facts, on Bitcoin Pizza Day, however, that highlight this:

    While being worth $30 at the time, Hanyecz pizzas would now cost $22.5 million at current bitcoin prices.

    If you bought $100 of bitcoin at the 0.003 cent price on May 22, 2010, you'd now be sitting on around $75 million.

    A number of factors have been driving the rally:

    Recently passed legislation in Japan that allows retailers to start accepting bitcoin as a legal currency has boosted trading in yen, which now accounts for over 40 percent of all bitcoin trade

    Political uncertainty globally has driven demand for bitcoin as a safe haven asset

    A debate within the bitcoin community about the future of the underlying technology behind bitcoin known as the blockchain has been taking place. There was fear at one point this could lead to the creation of two separate cryptocurrencies but those worries have largely subsided with an alternative, more palatable option now being put forward. 

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    Macro Morsels on China

    Thanks to a subscriber for this report from Maybank which may be of interest. Here is a section:

    Chinese authorities are attempting to delever their excessive levels of DEBT, which is causing a lack of credit at the short end of the curve, which in turn is driving up the cost of borrowing money at the short end.

    Hence , short rates are higher than long rates.

    However, unlike in the West, where an Inverted Yield curve signals trouble to the economy and to equities, having an Inverted Yield Curve is NORMAL in China.

    This Inverted Yield Curve has been the situation for the majority of the last decade.

    The red shaded area shows the times when 3 Month SHIBOR has been above 10 year government yields.

    Currently the 3 Month SHIBOR is at 4.44%, higher than the 10 year at 3.61%

    The AA 5 year rates have moved quite dramatically since last Oct, from a yield of 3.6% to 5.6% now.

    This rise in their cost of debt should be negative for Equities.

    Equities (SHCOMP) have indeed broken their uptrend and will remain an avoid until they can regain the 3200 level. 

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    CAD Software Firm Autodesk Soars On Quarterly Earnings Beat

    This article by Patrick Seitz for Investor’s Business Daily may be of interest to subscribers. Here is a section:

    Analysts were modeling Autodesk to lose 15 cents a share on sales of $488 million.

    Autodesk's annualized recurring revenue rose 18% year over year to $1.74 billion in the first quarter because of strong sales of subscription plans.

    "Broad-based strength across all subscription types and geographies led to another record quarter for total subscription additions and a fantastic start of the new fiscal year," Amar Hanspal, Autodesk co-CEO and chief product officer, said in a statement. "Customers continue to embrace the subscription model, and we're expanding our market opportunity with continued momentum of our cloud-based offerings, such as BIM 360 and Fusion 360."


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