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Expensive Brains: The Stock Market’s Killer Drone Technology

We’d like to interrupt your regularly scheduled Daily Reckoning with the news that a US drone strike in Pakistan killed eight people over night, according to Wired Magazine. It was the sixth US drone strike in Pakistan in the last eight days, with at least 35 deaths reported. It’s almost like President Obama and his nominee to be Director of the CIA, John Brennan, are trying to send a message, isn’t it?

   By the way, you should be aware that the number of civilian casualties from drone strikes is almost certainly higher than reported. Under a the ‘signature  strike’  definition created by the Obama administration, any adult male in the vicinity of a known (or suspected) terrorist or militant is fair game. After all, if you’re within 20 metres of a terrorist, you probably are a terrorist. Therefore your death is not recorded as a civilian casualty.

   Not everyone will be opposed to the use of drones on civil liberties grounds. The world is at war, after all. But as we pointed out yesterday, the precedents being set now will have long-term ramifications for how drones are used by everyone. And that’s not to mention the tremendous ‘blowback’ they are sure to generate in places where American drones terrorise locals.

   However, since this is an Australian investment e-letter, it occurs to us that there’s an even larger issue at stake for you: the increasing automation and mechanisation of everyday. Drones are just one example of this. You will see this technology proliferate in Australian public life under the guise of ‘public safety’. But you’ve already seen offshoots of this automation and surrender to the authority of machines in the financial markets.

   What is a trading algorithm other than a kind of financial drone? High frequency traders conduct drone strikes in the market all the time. True, no one gets killed when an algorithm moves a stock. But people make and lose money. And more importantly, the price of securities is no longer determined by what thinking people decide the value of a company is, it’s increasingly determined by non-thinking machines.

   Those machines follow rules set up by humans. But we suppose what we’re worried about is the general surrender of active thought in so many spheres of life. It’s like people are giving up on critical thinking. Or they are too busy staring at screens all day (computers, televisions, mobile devices) to spare any thought to tougher issues, like whether markets only work when they’re markets, or whether State security agencies should be using machines to kill people without any thought about unintended long-term consequences.

   But then, as this article in Scientific American shows, big brains are metabolically expensive! It’s not just that we don’t have time to think about serious things. We probably don’t have the energy for it either! The study shows that the larger brain size in humans comes at the cost of a smaller digestive system (compared to other animals). The net result might be fewer offspring.

   Energy is the key to everything, isn’t? Even capital is a kind of stored energy, to the extent that spending it releases real resources in the real world. If the world remains in a credit depression, or enters a full blown sovereign debt depression, energy will become even more important. It’s hard to say if investors can do anything with this knowledge. But let’s have a crack.

   Did you see what geopolitical analyst Robert Kaplan said about Australia and shale gas last month? If you missed it, here it is (emphasis added is ours):
 
 


            ‘It turns out that Australia also has large new natural gas deposits that, with liquefaction facilities, could turn it into a principal energy exporter to East Asia, assuming Australia significantly lowers its cost of production (which may prove very hard to do). Because Australia is already starting to emerge as the most dependable military ally of the United States in the Anglosphere, the alliance of these two great energy producers of the future could further cement Western influence in Asia. The United States and Australia would divide up the world: after a fashion, of course. Indeed, if unconventional natural gas exploitation has anything to do with it, the so-called post-American world would be anything but.’
   

               
   Well there’s some food for thought. Not everyone in Australia will agree with or like the idea that the US and Australia are natural allies in the 21st century. And certainly not everyone will like the idea of Australia gaining influence by becoming an unconventional energy super power of sorts. But it may happen anyway. We’ll see.

Dan Denning,
For The Daily Reckoning Australia

Dan Denning
Dan Denning is the Editor-in-Chief of The Daily Reckoning Australia and the author of 2005’s best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 as a small-cap analyst. From 2000 to 2005 he was the managing editor of Strategic Investment, where he recommended gold and warned of the US housing bubble. Dan has covered financial markets from Baltimore, Paris, London and, beginning in 2005, Melbourne Australia, where he is the Publisher of Port Phillip Publishing. To follow Dan's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
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2 Comments

  1. Chee says:

    The Anti Drone Solution:

    Dear Dan,
    In respond to your recent article, as well as several articles back, where there are mention of drone technology, I stumble upon this as a solution:
    http://www.geeky-gadgets.com/german-scientists-build-full-operational-double-barrelled-50-kilowatt-laser-turret-10-01-2013/

    Drone technology is not new to me as I know people who were doing research on UAVS (older names for drones). However, your article brought out a really serious prospect of what it can be used (and is used) for and who can authorise its use. I can even think of more serious cases when researching on ancient prophetic literature.

    Anyway, fear not, our German friends has the solution to counter this threat and possibly to maintain freedom. The web link above shows a laser technology that can be mobilised to counter flying objects. Interesting read I think ….

    Chee

  2. Garry says:

    “no one gets killed when an algorithm moves a stock.”” Well maybe in the literal sense, however, an ASX sanctioning of the gaming set who use these drones, translates to retail investors leaving the stock market in droves, and there’s not much likelihood they will be back. Simply put, it is no longer safe to invest money there. ASIC and our supposed oversight watchdogs can say and do all they like about the goodness of HFT, Algorithms, Dark pools, and the benefits of Hedge Funds bringing liquidity to the market, but retail investors just don’t believe them nowadays. End of story !

    A decent test for the above contention is not hard to come by – however our watchdogs never bother with these things.

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