WILL POTENTIAL REGULATION OF ARTIFICIAL INTELLEGENCE COMPANIES BECOME A MAJOR MARKET RISK?

Will regulating artificial intelligence…aka social media companies…become a major market risk?  As widely known, social media companies are massive AI operations, their data centers running software on millions of computers that are systemically exploiting weaknesses in human psychology: our tribalism, our gullibility, or wanting to be told what to believe, our wanting to be liked, our wanting to be told that we are right.  And they are exploiting it to the end of maximizing advertising revenue.

It is often written if you are not paying for some product or service, then you are the product or service.

In other words, we have become the data base of artificial intelligences that is selling our attention and our behavior patterns to advertisers including political organizations.  It can and is also utilized by the owners of the AI systems itself to maximize their objective of wealth, power and influence, writing or influencing the political narrative in their favor.

Many people ask is AI dangerous.  Some think it is more dangerous than nuclear weapons, a view I share if the information is utilized for nefarious purposes. It is largely accepted human nature is inherently evil.

I believe a massive power struggle is unfolding between government and these AI companies for domination of society.  Wow!  This is radical, but is it?  By definition authoritarian governments demand total allegiance to itself, for example China’s social grading scores given to its citizens.    AI companies also are desirous of this same loyalty and power.

What are the odds these AI companies will become regulated in a similar manner as public utilities, a current bipartisan proposal?

Global governments are grossly indebted, looking under every rock for tax revenues.  Approximately 72% of the world’s global economic production are targeting these AI companies for increased revenues.  How will this unfold?

As discussed, a gazillion times, approximately 24% of the S & P’s capitalization is amassed in five companies, an unprecedented amount.  What happens if the regulatory and tax environment radically changes, a change that has already been endorsed by the majority of the world’s economic production?

If we use history as precedence, shares could fall dramatically.  Since five companies comprise a significant minority of the S & P 500 capitalization, a strong argument can be made the indices will be lackluster at best for a prolonged period of time.

Commenting on yesterday’s market activity, stocks were mixed, oil and Treasury yields were at 11-month highs and the dollar declined.

Last night the foreign markets were down.  London was down 0.17%, Paris down 0.04% and Frankfurt down 0.18%.  China was down 0.27%, Japan up 1.04% and Hang Sang down 0.15%.

The Dow should open mixed.  There are rising concerns the Fed might withdraw stimulus earlier than expected with some fearing a repeat of the “taper tantrum” of 2013.  These fears were partially dismissed by several Fed governors but highlights the risks to the markets that are so dependent upon Fed support, support that can not last into perpetuity. The 10-year is unchanged at 1.14%.  Oil is nominally higher and the dollar nominally lower.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.