1. Barter, Auction and Technology
Global Asset Allocation and Stock Selection
Barter, Auction and Technology
Campbell R. Harvey
Duke University, Durham, NC USA
National Bureau of Economic Research, Cambridge MA USA

2. Future of Asset Management: -----Technology
We have seen exponential growth in exponential growth of computing!
Growth factors:
Shorter distance for electrons to travel (transistor die size gets smaller)
Greater number of transistors

3. Future of Asset Management: -----Technology
New growth factors:
“Pipelining” -- Multiple calculations performed at the same time (parallel processing)
Hence, conservative forecast would be to slow to exponential growth

4. Future of Asset Management: -----Technology
Human brain:
100 billion neurons
1000 connections between each neuron
100 trillion connections, each capable of simultaneous calculation

5. Future of Asset Management: -----Technology
Human brain:
Strength:
Massively parallel
Weakness:
Very slow, only 200 calculations per second.
Explains why brains does a great job at operations that require massively parallel, such as pattern recognition.

6. Future of Asset Management: -----Technology
Human brain:
At 200 calculations per second and 100 trillion connections, implies 20,000 trillion calculations per second.

7. Future of Asset Management: -----Technology
Currently, we can do 2.7 billion calculation per second for about $1000 (Intel 2.2Ghz Pentium 4)
Itanium 2, 6.4 billion FLOPS

8. Future of Asset Management: -----Technology
Accelerated Strategic Computing Initiative (ASCI) has a supercomputer capable of 12.8 trillion calculations per second with plan for 100 trillion by 2004
At this rate, 28,000 trillion by 2016

9. Future of Asset Management: -----Technology

10. Future of Asset Management: -----Technology
ASCI Q, named to follow LANL's tradition of alphabetical names for computers, will have 11,968 processors, 12 terabytes of memory and 600 terabytes of disk storage.
Goal of reaching 100 teraFLOPS in 2004.
The Los Alamos ASCI supercomputer, Q, is now being installed in its new facility, the Nicholas C. Metropolis Center for Modeling and Simulation, dedicated in May 2002.

11. Future of Asset Management: -----Technology
NEC Earth Simulator, March 2002

12. Future of Asset Management: -----Technology
NEC Earth Simulator, March 2002
This is the world’s fastest supercomputer configured with 640
nodes (64GFLOPS/node, 5,120 CPUs in total), each of which
consists of eight vector processors (8GFLOPS/CPU).
Achieves the peak performance of 40TFLOPS

13. Future of Asset Management: -----Technology

14. Computing and the Human Brain
1040
1035
1030
1025
1020
1015
1010
105 10
10-5
10-10
All Humans’ Brains
Calculations per second per $1000
Human Brain
Mouse Brain
Insect Brain
Source: Ray Kurzweil, updated from various sources

15. Future of Asset Management: -----Technology
Forecasts:
2016 Achieve capacity of human brain (based on extrapolation of Lawerence Livermore National Laboratories ASCI)
2025 Achieve the same capacity for $1000
2060 Achieve the capacity of 1 trillion humans

16. Future of Asset Management: -----Technology
What about memory?
Brain capacity is 100 trillion synapse strengths which is approximate 1 million billion bits
1 billion bits (128 megabytes) today costs less than $100.
Reasonable forecast would be the memory equivalent of the brain by 2020 for $1000

17. Future of Asset Management: -----Organzational Structures
Impact for the Corporation?
Corporations mainly evolved in the late 19th century as a way to reduce transactions costs (including limited liability)
The forces that created the environment for the corporation to thrive seem to be working against the corporation in the future.

18. Future of Asset Management: -----Organzational Structures
Impact for the Corporation?
Transactions costs are dramatically lower (this includes barriers to entry, cost to reach consumer, etc.)
The logic of centralized control has given way to a decentralized entrepreneurial type of capitalism.

19. Future of Asset Management: -----Organzational Structures
Impact for the Corporation?
Need to look hard at what are the advantages that a large corporation in this future landscape.
Micro-specialization and growth of outsourcing.

20. Future of Asset Management: -----Organzational Structures
Impact for the Consumer?
More information, more competition, more value.
Evolution from mass marketing, to segments, to individuals.

21. Future of Asset Management: -----Impact for Finance
Major driving forces
AI/Pattern recognition integrated into management
C2C will greatly reduce role of corporation that are facilitators
Sharp growth in reverse auction
Barter

22. Future of Asset Management: -----AI
Pattern recognition
We have seen very crude neural net applications fail.
In the future, much more complexity is possible.

23. Future of Asset Management: -----AI
Example: Next generation of pattern recognition
Consider a string of numbers
Could represent graphics, words.
Let’s represent this in a binary tree and use the theory of data compression.

25. 0100101010001010111101011010100101 Only 20% probability of drawing a 1
IIII I

26. Future of Asset Management: -----C2C
Client to Client?
Cuts the role of the middle person (or redefines role).
Efficient collection of information
Growth in validators, new form of insurance

27. Future of Asset Management: -----Auction
We have seen dramatic growth in consumer auctions.
Next we will see growth in B2B and C2C auctions

28. Future of Asset Management: -----Barter
Logic of currency:
Unit of account
Eliminates transactions costs of barter

29. Future of Asset Management: -----Barter
What about currency?
Transactions cost of barter have dramatically decreased with Internet
In the future, money will be a unit of account - and it is not even clear that is necessary (unit of account could be anything)

30. Future of Asset Management: -----Barter
Implications for currency
Large B2B barter market
Forward barter could reduce much of the need for working capital
Rethink the need for debt

31. Future of Asset Management: -----Global finance
Implications for global finance
Currency less important
Shorter term: Three currency zones
Shortly after: One world unit of account

32. Future of Asset Management: -----Global finance
Implications for finance
Currency hedging will be less important - if it exists at all
Implications for interest rate management
Debt will not be in traditional currency but goods

33. Future of Asset Management: -----Next
A look at the changing landscape of FX management
Competitive landscape
Specific C2C method
Implications for Asset Management