Who is responsible when artificial intelligence harms someone?
The California jury may soon have to make a decision. In December 2019, a man driving a Tesla (TSLA) with an AI navigation system killed two people in an accident. The driver faces up to 12 years in prison.
These events were bound to happen as teething pains are quite common with new technology especially one that is ambitious enough to transport machines in a human world.
Multiple federal agencies are investigating Tesla crashes, and The California Department of Motor Vehicles is investigating the use of AI-controlled driving functions.
Our current liability system, used to determine liability and compensation for injuries, is not AI-friendly.
Liability rules were designed for a time when humans caused most injuries.
But with AI, errors can occur without direct human intervention. The liability system must be adjusted accordingly. Poor accountability won't just stifle AI innovation. It will also harm patients and consumers.
It's time to start thinking about accountability as AI becomes ubiquitous but remains under-regulated. AI-based systems have already contributed to injuries.
The right accountability approach is critical to unlocking the potential of AI. Uncertain regulations and the prospect of costly litigation will deter investment, development, and deployment of AI in industries ranging from healthcare to autonomous vehicles.
Currently, liability claims typically begin and end with the person using the algorithm. Of course, if someone abuses the AI system or ignores its warnings, that person should be held accountable.
But AI errors are often not the user's fault. Who can blame an emergency doctor for letting an AI algorithm miss papilledema — a swelling of part of the retina?
AI's failure to detect the disease could delay care and potentially cause the patient to lose their eyesight. Papilledema is difficult to diagnose without an ophthalmologist.
AI is constantly self-learning, which means it takes in information and looks for patterns in it. This is a "black box" that makes it difficult to understand which variables affect the outcome.
The key is to ensure that everyone involved - users, developers, and everyone else in the chain - has been vetted to keep AI safe and effective.
First, insurers should protect policyholders from AI injury litigation costs by testing and validating new AI algorithms before deploying them.
Car insurers have also been comparing and testing cars for years. An independent security system can provide AI stakeholders with a predictable system of accountability that adapts to new technologies and practices.
Second, some AI errors should be challenged in courts that specialize in uncommon cases. These tribunals may specialize in particular technologies or topics.
Third, proper regulatory standards from federal agencies can offset the excessive liability of developers and users. For example, some forms of medical device liability have been superseded by federal regulations and laws. Regulators should focus on standard AI development processes early on.
Regulation can make or break AI in the upcoming years and I definitely lean towards the laissez faire attitude of deregulation.
Too many regulations will stifle the development and bring about undue costs.
No company will continue with loss-making operations unless they see a light at the end of the tunnel.
If allowed to develop with light regulation, AI will be that supercharger to tech stocks that investors dreamed of.
Transportation-based tech stocks such as Uber and Lyft will be one of the largest winners from the widespread implementation of driverless technology.
Also, throw in there the food delivery companies like DoorDash (DASH).
Another group with immense expense-saving possibilities is all the airlines around the world because theoretically, self-driving technology will become good enough to deploy in short and long-haul flights.
Getting to the point of consumers and regulators fully trusting self-driving technology is still a long and windy path, but I do believe we will arrive there.
When we do get there, the tech companies exposed to these great benefits will feel a 10X boost to their share price.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-03-06 16:02:202023-03-28 15:01:56Dealing With a Black Box
Uber (UBER) has been one of the greatest influencers of American culture in the last 10 years, but that doesn’t mean they laugh all the way to the bank - hardly so.
The unit economics have never made sense as they hopped from the first cash-burn taxi service to another cash-burn food delivery service.
As many know, profits matter in this brave new world of tech investing simply because zombie companies cannot roll over debt because of higher interest rates.
Just in the nick of time, Uber Chief Executive Dara Khosrowshahi seems to have saved the day.
He has a grand solution to finally get Uber to profitability.
Most know the largest expense to doing business is often wages.
Anyone who has run a real business, essentially the inverse of a German politician, understands that if there was some way and somehow to reduce the wage bill or other large expenses, profits would go up extraordinarily.
For Uber, the highest expense since its inception has been the taxi or food delivery guy driving around.
Now, Uber is working with automakers to design lower-cost electric vehicles tailored for its ride-hailing and delivery businesses, part of its effort to “electrify” or de-emphasize the drag of running a fleet with a flock of gas guzzlers.
Khosrowshahi said the company is working with manufacturers on vehicles optimized for city use, ferrying passengers and deliveries.
For ride-sharing, that includes cars with lower top speeds and with seating areas where passengers can face each other.
I’m surprised it took Uber management so long to do this but better late than never.
Uber is considering smaller vehicles with two or three wheels and trunk space.
Such vehicles can get through traffic easier and have a much smaller footprint, both in terms of environmental but also traffic footprint than, let’s say, a car to go deliver groceries.
The announcement comes as Uber is working to convert the fleet of vehicles its drivers use to electric by 2030 in many parts of the developed world, and in some places like London by 2025.
Truth be told, they have made headway in profitability reducing the annual cash burn in the last three years from $8 billion to $6 billion and then just last year only $500 million of losses.
Uber needs a little more juice to finally break even and I do believe this initiative will do the trick.
However, the crystal clear next step is the path laid out recently by the behemoths like Facebook, Microsoft, and Google.
Uber should fire 75% of the engineering team and 100% of the sales team.
The brand largely sells itself and the brand is ubiquitous in every corner of the globe.
If Uber management goes for this low-hanging fruit, I easily see a double in this stock from today’s $25.
The lack of profitability has always been that one impossible nut to crack for Uber management and now that they are so close, why not close the deal?
The stock has been on a tear for the first 20 days of the year going from $25 to $30 today.
Shares are up another 4% today at the time of this writing and I believe readers need to buy the dip on this ride hailing stock as battered down tech stocks come back into play.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-01-20 15:02:412023-02-01 00:32:272023 Is The Year For Uber
This one move blows up the business models of Uber (UBER), Lyft (LYFT), DoorDash (DASH), and any other tech platforms reliant on self-employed drivers.
Whether it’s denying the expansion of domestic energy capacity or meddling in self-employed worker status, the government is hell-bent on putting its stamp on the economy.
And boy they do.
It’s been rough lately for the ride share firms.
Uber fares have not been trending down lately as the combination of higher insurance costs, higher fuel prices, and higher costs to car ownership have meant passengers pay more to get from point A to point B.
I don’t need to chronicle how the cost of doing business is inching up because it’s happening everywhere and that just means the goalpost is narrowing in order to get costs below revenue.
That is the new normal whether we like it or not.
However, for Uber, their business model just might be untenable if they are forced to sign up drivers as full-time workers who receive full benefits including a 401K, health insurance, overtime pay, and paid time off.
This is expensive.
Under the US Labor Department's proposal, workers would be more likely to be classified as employees instead of independent contractors.
Tens of millions of people work in the global gig economy across services like food delivery and transport.
US Labor Secretary Marty Walsh said the rule would aim to stop companies from misclassifying workers as independent contractors.
For those that use ride share, there is no workaround to higher compensation in signing up full-time workers and costs will be passed down to the end user causing ridership to fall.
Gig economy firms have come under increased scrutiny as the industry grows in size.
Payments firm MasterCard has estimated that 78 million people will be employed in the gig economy by next year.
Gig workers are paid for individual tasks, such as food delivery or a car journey, rather than getting a regular wage.
In the first half of 2022, Uber lost almost $7 billion and the only reason why they can still exist is because of investors pouring money down a black hole to fund Uber’s existence.
I still don’t see how they make the unit economics work and their stock price reflects my analysis.
The stock trades around half of $51 which was achieved during the height of the reopening from the arbitrary lockdowns in 2021.
Reality has come back to bite as the same issues persist and every rally in this stock has been a great selling opportunity.
This ride share company has no chance of ever becoming profitable and they have done nothing to signal they are on the right track.
Just because they “do better than Lyft” doesn’t mean it’s a great long-term buy-and-hold stock or even a good company.
On top of poor unit economics, Uber’s ability to tap the debt markets to borrow money has been severely crimped.
Borrowing at extortionate rates makes it impossible to spin profits which means going back to the debt markets once again in a vicious negative feedback loop.
At some point, they will be shut out because of creditworthy issues even if not yet.
Who would want to invest in a company like that?
If a reader wants to put money to work in this stock, sell short after every bear market rally or buy outright puts after every rally.
Don’t reward tech firms that behave poorly or ones that can’t make money.
Below please find subscribers’ Q&A for the August 24 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: I’ve heard another speaker say that we are not heading for a Roaring Twenties; instead, we are heading for a Great Depression. Who is right?
A: There are many different possible comments to this. Number one, in the newsletter business, the easiest way to make money is to predict the Great Depression and panic people. Stock market Gurus have been predicting the next Great Depression for all of the 54 years that I have been in the financial markets. We’ve gone through a whole series of Dr. Doom's over this time. We had Nouriel Roubini, we had Henry Kaufman, and before that, there was Joe Granville who predicted Dow 300 when the Dow was at 600 and never gave up. The reason is very simple: the people making these dire forecasts are based in depressionary places. If you live in Puerto Rico, or Ukraine, or Europe, it’s easier to be depressed right now, because the economy is falling to pieces. If you live in Silicon Valley, like I do, and you see these incredible technologies delivering every day, it’s easy to be bullish about the future. So, that is another part of it. On top of that, we’ve just had a recession. And even during this last recession, earnings continued to grow at 5% for the main market, and 20-30% for individual technology companies. The market goes up 80% of the time so if you’re bullish, you’re right 80% of the time. In fact, that may increase going into the future because we just had six months of down days behind us.
Q: How do you know when to buy?
A: Well, I have about 100 different market indicators that I look at, but my favorite one is the Volatility Index (VIX). The (VIX) is the perfect contrary indicator because when fear is high the payoff for taking on risk is huge. The risk/reward swings overwhelmingly in your favor. The simplest indicators are usually the best ones. When (VIX) gets to $30—I don’t think I’ve ever lost money in my life adding on a new trade with (VIX) at $30. If I add positions with the (VIX) at under $30, the loss rate goes up; so, I’m inclined to only do trades when the (VIX) gets close to $30. If that means doing nothing for a month, that’s fine with me. If telling you to stay out of the market makes more money than getting you into the market, I’ll keep you out of the market. I’m not a broker so, I don’t get paid commission; I get paid to give you the highest annual returns so you’ll renew because I only get paid if you renew. Our renewal rate is about 80% these days, and the other 20% either die or retire.
Q: What about the Tesla (TSLA) 3:1 split?
A: In the short term I would stand back and do nothing because you often get a “buy the rumor sell the news” selloff in stocks after splits. Long term, Tesla is a strong buy; short term, we are up close to 60% in a couple of months. Betting that Tesla would rise going into this split was one of the most successful trades that I’ve ever done.
Q: Did you know Julian Robertson?
A: Yes, I did. Julian was one of the first investors in my hedge fund, and then he was one of the first buyers of my Mad Hedge newsletter. He was also my first concierge client. He had one heck of a temper; if you didn’t know your stuff cold, he would just absolutely blow up at you. But he did tend to surround himself with geniuses. He drew on Morgan Stanley people a lot, so I knew a lot of the tiger cubs. But he certainly knew stocks, and he knew markets.
Q: What do we do on the SPDR S&P 500 ETF (SPY) position?
A: Just run it into expiration. As it is my only position, I don’t really have anything else to do and I don’t really see any explosive upside moves in markets this month. And then after that, we will be 10 days to expiration; so there may be enough profit there at that time.
Q: As a long-term investor, should I take Tesla profits now?
A: If you're really a long-term investor and sell now, you’ll miss the move to $10,000. However, if you’re a trader, you should take some profits now and look to buy and scale in down $50 and more down $100, and so on, depending on what the market does.
Q: What are your thoughts on Nvidia Corporation (NVDA) and semis?
A: When recession fears exist, you will have sharp downturns in the semis, because this is the most volatile sector in the market. However, in the long term in Nvidia you might be looking at a 20% of downside, and 200% of upside on a three-year view. It just depends on how much pain you want to take while keeping your long-term position.
Q: Why is September typically the worst month of the year for stocks?
A: You need to go back 120 years when farmers accounted for 50% of the US population. In the farming business, September/October is your maximum stress point, because you’ve put out all your money for seed, for water, for fertilizer, but you don’t get paid until you sell your crop in September/October. That creates a point of maximum stress—when farmers have to max out the loans from the banks, and that creates cascading stresses in the financial system. That’s why almost every stock market crash happened in October. And of course, since that cycle started, it has become a self-fulfilling prophecy to this day. Even though only 2% of the population is in farming now, that selloff in September/October is still there. There’s no real current reason behind it.
Q: How do you find good spreads?
A: You find a good stock first, then a good chart, and then wait for the market to come to you with a high Volatility Index (VIX) with a good micro and macro tailwind. It’s that simple.
Q: Do you think healthcare will sell off once the recession fear is gone?
A: It may not because it had a massive selloff across the entire industry when COVID went away. They've taken that COVID hit. That's a recession if you’re a healthcare company. Now COVID is essentially gone, so they haven’t got it left to lose. In the meantime, technology continues to hyper-accelerate in the healthcare area, just in time for old people like me.
Q: How would you invest $1 million in a retirement portfolio today?
A: Call me—that’s a longer conversation. Or better yet, sign up for the concierge service, and we can talk as long as you want.
Q: Any hope for Facebook (META)?
A: No, when you’re advertising that you’re going to lose money and that you’re not going to make money for five years, that’s bad for the stock. I’m sorry Mr. Zuckerberg, but you should have taken those financial markets classes instead of just doing the programming ones.
Q: Will Powell be dovish or hawkish in his speech?
A: I think he has to go hawkish because he needs to justify the next interest rate hike in September. That’s why I’m 90% cash. The market is set up here not to take disappointments on top of a 4,000-point rally in two months. It’s very sensitive to disappointment, so it’s a good time to be in cash.
Q: What stocks go down the most if we get a 5-10% correction?
A: Semiconductors. Nvidia (NVDA), Advanced Micro Devices (AMD), Micron Technology (MU) are your high beta stocks. Having said that, those are the ones you want to buy at market bottoms. I’ve caught many doubles on Nvidia over the years just using that strategy. When you’ve had a horrible market, you want to go for the highest beta stocks out there, and those are the semis. Plus, semis have a long-term undercurrent of always making more money, always improving their products, always increasing market shares. So, you want to invest with tailwinds behind you all the time. 30 years ago, a new car needed ten chips. Now they need 100. That accelerates exponentially as the entire auto industry goes EV.
Q: What’s your opinion on Lithium companies?
A: You know, I haven’t really done much in this area because it is a basic commodity. The profit margins are minimal, there is no Lithium shortage in the world like there is an oil shortage. Plus, no one has a secret method of mining Lithium that is more profitable than another. No one has an advantage.
Q: Is there a logical maximum number of stocks to have in a share portfolio?
A: I keep mine at ten. You should be able to cover every good sector in the market with ten. When I talk to new concierge customers and review their portfolios, one of the most common mistakes is they own too many stocks – there can be 50, 100, 200 stocks, even several gold stocks. And you never want to own more than you can follow on a daily basis. It’s better to follow ten stocks very closely than 100 stocks just occasionally.
Q: How low do you think Apple (APPL) will go on this dip?
A: Minimum 10%, maybe 20%. Just depends on how weak the market will go in this correction.
Q: What was your defensive plan when you sold short Tesla puts?
A: If they got exercised against me and the Tesla shares were sold to me at my strike price, I was going to take the stock, then let the stock rally. If my long-term view for Tesla is $10,000, it’s not such a problem having a $500 put exercise against you—you just take the stock and run the stock. That was always the strategy. Never sell short more puts than you can take delivery of in the stock. Your broker won’t let you do it anyway to protect themselves.
Q: Do you think we could get a strong rally on the next CPI report?
A: Yes. The report is due out on September 13. But some of a sharp drop in the CPI in the next report is already in the market, so don’t expect another 2,000-point stock market rally like we got last time. It’ll be a much lesser move and after that, we’ll need to see more data. We may get 1,000 points out of it, probably not much more. After that, the November midterm election becomes the dominant factor in the market.
Q: When is natural gas (UNG) going to roll over?
A: When the Ukraine War ends, and that day is getting closer and closer. I think it’ll be sometime in 2023. And if you get an end to the war (and the resumption of Russian supplies is not necessarily a sure thing) you’d get a move in natgas from $9 down to $2. So, that’s why I’m very cautiously avoiding energy plays right now. The big money has been made; next to happen is that the big money gets lost.
Q: What are your thoughts on Florida’s pension fund now banning ESG stocks? I live on Florida state pension fund payments.
A: You might start checking out other income opportunities, like becoming an Uber (UBER) driver or working at MacDonalds (MCD). What the Florida governor has done is ban the pension fund from the sector that is most likely to go up over the next ten years and restricted them to the sector (oil) which is most likely to go down. That is very bad for Florida’s pension fund and any other pension funds that follow them. And I’ve seen this happen before, where a pension fund gets politicized, and it’s 100% of the time a disaster. Governors aren't great market timers; politicians are terrible at making market calls. There are too many examples to name. ESG stocks were one of the top performing sectors of the market for 5 years until we got the pandemic crash. So, that is an awful idea (and one of the many reasons I don’t live in Florida besides hurricanes, humidity, alligators, and the Bermuda Triangle).
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER, or BITCOIN LETTER, whichever applies to you, then select WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
I can’t say that I love the stock Uber, but the company would be good for a trade.
It’s a company with a poor business model that has essentially no way to ever become profitable.
At a time when profitability matters, the stock has been on the downtrend, but the recent reversal has brought Uber shares back to July 2020 levels.
Uber is caught in the middle of the inflation battle that the economy and society are fighting.
The company is a direct beneficiary of lower inflation and the consensus around the economy is that inflation has peaked because we are headed to a recession.
That doesn’t mean inflation is going back to 2% right away, but Uber’s investors will pile back into the stock if inflation trends around 5-7%.
The last time oil prices were under $90 per barrel was before the Ukraine conflict started.
Uber has two really big problematic businesses that they claim are successful.
One is the delivery business and the other is the ride-sharing one.
The ride share business did $3.55 billion in revenue last quarter compared to delivery’s $2.69 billion.
Uber’s freight segment delivered $1.83 billion in revenue for the quarter.
Uber recently announced new changes that may help it continue to attract and keep drivers. They’ll be able to choose the trips they want, for example, and will be able to see how much they’ll earn before they accept a trip.
The company reported 1.87 billion trips on the platform during the quarter, up 9% from last quarter and up 24% year over year.
Monthly active platform consumers reached 122 million, up 21% year over year. Drivers and couriers earned an aggregate $10.8 billion during the quarter, up 37% year over year.
Management said new driver sign-ups were up 76% year over year. They said over 70% of drivers said inflation and cost of living played a part in their decision to join Uber.
Adding more drivers combined with a newfound desire for revenge travel has offered a temporary solution to Uber’s business.
Paying drivers double and investing in the delivery business isn’t cheap, but management is hellbent on this strategy as their mandate as a growth company is to grow.
They don’t want to become another Netflix that's bereft of any modern ideas even if the unit economics don’t work at Uber.
Uber’s global users climbed to 93 million from 91 million in a quarter and it certainly helps to be a monopoly in the driver-sharing space.
If inflation has peaked and oil prices don’t suffer the same spikes we saw earlier this year, there is a high chance that Uber’s stock price will inch up.
Even better, the great job’s number this morning means that the economy will likely stave off a recession for the time being and at the very worst delay the start of it.
The 528,000 jobs added smashed the 25,000 estimates and oddly enough, the labor force participation fell to 62.1 meaning that people who already had a job, needed to find another job because inflation is so bad for the lower and middle class.
This certainly means that many of these people were pushed into Uber delivery and ridesharing jobs because those don’t come with fixed hours and are a nice way of supplementing income.
In broad terms, this is highly negative for the median American because if a worker is paid enough for one job, they would most likely forgo getting a second or third job.
In the short term, the stock has been screaming higher, and I would wait for a pullback as Uber has gone from $20 per share to $32 in the latest rally.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-05 11:02:432022-08-05 15:43:23Worth A Trade
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-07-13 13:04:452022-07-13 15:00:04July 13, 2022
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