Did I Mention . . .

there are a host of issues surrounding regulation of autonomous cars and if left to the states the automakers are going to have a mess to navigate?  Oh yeah, I think I did back in July in my Driving Me Crazy post on autonomous cars:

http://financialspiltmilk.blogspot.com/2016/07/driving-me-crazy_97.html

There I noted:

Driver's licenses are issued at a state level, driving laws are at a state level, required insurance is at a state level and liabilities for accidents are determine under individual state standards.  Giving a lot of this control over to the federal government is not going to be an easy sell.  Can you imagine Texas giving this up?  But it is something that has to be uniform to work and it will not be uniform on a state level.  Thus, Volvo, for one, has been pushing the federal government to regulate this area and not leave it to the states.

http://www.digitaltrends.com/cars/volvo-urges-u-s-government-to-regulate-autonomous-cars/

There is enough money and societal benefit at stake that it will likely eventually happen, but it will be a long and painful journey.

Well, the painful process of state regulation is taking hold.  You see the NHTSB recently released guidance for the states but is leaving regulation up to them.  And I am sure that will work out quite well, because if you are making autonomous cars programming them to navigate cities, foul weather and the like is nothing compared to trying to navigate differing laws in 50 states.

Recently the following article was posted in Insurance Journal noting objections by Google and others to new California regulations being proposed for autonomous cars:

http://www.insurancejournal.com/news/west/2016/10/20/429908.htm

You can find the bill and its Legislative Counsel's Digest for your digestion here:

https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201120120SB1298

And if you read the bill it has a host of wonderful provisions that lawyers are going to love as they will get to fight over these in courts for years to come.  For example, "Autonomous Vehicle" means any vehicle equipped with "Autonomous Technology" and "Autonomous Technology" means "technology that has the capability to drive a vehicle without active physical control or monitoring by a human operator."

Let's consider these fine words in the context of the 70,000 Teslas that the company seems to be beta testing with or on its customers.  The cars have Tesla's "AutoPilot" feature.  Now from what I have read, the human driver is supposed to monitor at all times "AutoPilot" is engaged and not, for example, be watching a movie on his iPad.  The driver also apparently has to touch the wheel every now and then so the car knows the driver is most definitely not just watching a movie.  I mean, seriously, how on Earth could someone watch a movie and still occasionally touch the steering wheel.  So certainly Tesla will argue that its "AutoPilot" does not qualify as "Autonomous Technology" under the proposed bill.  Indeed, the bill is for companies testing their autonomous vehicles, not those foolish enough to sell them and let their customers take them on the road even if data from these customers is helping the company refine its technology.  Oops, did I say technology?  I meant something else because the Tesla autonomous stuff is not by any means Autonomous Technology; at least not under the bill language.  And beta testing through your customers is not really testing in the sense the bill means, is it?

But Google on the other hand, who is carefully testing its autonomous cars with technicians and drivers and who has only had one minor fender bender in many years of testing is going to bear the brunt of this bill, which no doubt was prompted by wrecks and fatalities involving Teslas.  Folks at Google have to be fuming.

Excuse Me, Can I Have a Little Privacy Here

So one of the fun features of autonomous cars is that they will be recording everything.  Kind of like the black box in airplanes but here it is just a computer saving data on what you are instructing the car to do and what it is recording from sensors.  So let me ask, are you going to be allowed to instruct your autonomous car to exceed the speed limit?  If you can and do, do you automatically get a ticket?  Will our speed limits even apply to the superior technology of autonomous cars and do they need to?  I can see these cars being programmed to drive at the safe speed for the conditions, whatever that is.  Oh, so many questions so few answers.

Either way, the car will definitely track where you have been, when you got there, how long you were there, when you left and where you went.  Your personal life will be anything but autonomous, but hey, your car is autonomous so who cares. 

One of the issues with the regulations will be the extent to which the government, as in police, have access to your vehicle information without following that little warrant thingy, which requires a court thingy and requires a reason justifying the search thingy. 

Do you even realize currently if you have a late model car there is likely a tracking device in your car tracking where your are?  Probably not, but hey, it is an excellent device for all those sub-prime auto lenders to find your vehicle to repossess it should you miss a few payments. 

You entered the 21st century and just checked any privacy at the door.  Heck, if you are reading this, someone, if they want, can retrace everything you have done on your computer today or ever.  Sure, deleting the history on you internet searches can hide the porn searches from your wife or husband, but it is still there, waiting to be found.  Sleep well . . .

 

My Toaster Is a Terrorist!!

Many folks in the Eastern US and apparently in Europe know full well of the recent attack that severely slowed or virtually shut down the internet for certain popular sites like Amazon, Twitter and PayPal.  The botnet DDoS attack was basically millions of internet connected devices (Internet of Things "IoT") all connecting or sending messages in at the same time. 
http://blog.rackspace.com/internet-of-things-why-connected-toasters-and-other-smart-home-devices-matter

Apparently, such wonderful things as toasters, cameras, refrigerators and the like are all now being connected and they are easily hacked to install malware that allows them all to send signals or requests at the same time.  Tens of millions of such requests can shut down a web portal, like Dyn. 

https://krebsonsecurity.com/2016/10/hacked-cameras-dvrs-powered-todays-massive-internet-outage/

And yet, a few years from now we are all supposed to trust our lives to autonomous cars.

By the way, if you have noticed your internet connection at home slowing down otherwise, perhaps it is because you have so many IoT devices connected, all of which will eat a tad of bandwidth.    How good is that connected toaster, doorbell or pool vacuum looking now?

Ding, Ding, Ding - We Have A Winner!

Well, we finally got there.  GDPNow from the Atlanta Fed puts the 3rd Quarter GDP now at 1.9% annualized rate, half of where they started the 3rd quarter forecast at 3.8 %, just as I anticipated when they first put out their 3.8% figure.  And the fun part is the forecasting (or retro-casting at this point) is not over with.  They will continue regular adjusting this month and then occasionally providing revised figures going forward.  All of which I suspect will make the now 1.9% forecast look optimistic.  Perhaps a 2% target is proving a tad too much for the Fed.  After all, we are following the Japan playbook which now for a few decades has proven itself highly flawed and incapable of delivering the results that Keynesian economists predict.  Not sure why such economists are unwilling or incapable of seeing what is slapping them in the face.

https://www.frbatlanta.org/-/media/Documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

But it gets better.  Apparently dear Janet is reportedly considering letting rates sit where they are despite the economy running "hot" - yes, you read that right - as inflation targets are not being met.

http://www.bloomberg.com/news/articles/2016-10-15/yellen-s-talk-of-hot-u-s-economy-extends-october-long-bond-rout

Has she seen corporate profits sinking for the past six quarters?  If that is a "hot" economy, I would hate to see a cold one, though I fear I will in the very near future.

But Perhaps I Am Wrong - 10/28/16 Update

It would seem that the economy had a bit of an uptick in the third quarter, as reported by Bloomberg:

http://www.bloomberg.com/news/articles/2016-10-28/u-s-economic-growth-rebounds-on-boost-from-exports-inventories

Indeed, GDP rose at an annualized 2.9% rate, well above the GDPNow current forecast and above analyst expectations of 2.6%.  I note that .6% of that is due to inventory build, which while supporting GDP this quarter may dampen it next if that inventory is not sold, but still a solid advance so far.  Looks like Janet will get to raise her rates after all.  Wagers still seem to favor December over November for when that should happen.

Binky Spurt

Just a quick note as this seems a bit entertaining to me.  The things you hear about gold prices are all over the place from it being the wisest investment on earth to gold being as worthless as coal these days.  Decide for yourself which is right for the long term.  One thing that is clear is that for the short term the price tends to swing widely, like over 3% down yesterday, in part tied to expectations on Fed rate hikes because rising rates lowers the price of gold.  And yes, oddly enough expectations recently have been growing for a December rate hike despite the GDP forecasts progressively going down for the U.S. and the world, whether you look at GDPNow as I recently did, or the IMF, which just slashed its 2016 GDP prediction for the U.S. from 2.2% down to a meager 1.6%. 

http://www.zerohedge.com/news/2016-10-04/imf-slahses-us-gdp-gowth-outlook

Not exactly the growth target the Fed is looking to achieve, yet expectations for a hike are on the upswing and gold is slumping in part because of it.

http://www.zerohedge.com/news/2016-10-04/gold-tumbles-below-1300-yen-crashes

Indeed, today Bloomberg carried an article on how the Deutsche Bank AG Chief Global Strategist believes the drop in gold will continue and it is 20 - 25% overpriced.  According to Binky - yes, his name is Binky - while rate hikes might have an impact, the real driver of a reduction in gold will be a recovery in global growth!  Yes, you heard that right, the economies of the world can prepare to rejoice as a growth spurt is on the way.  Let's officially name it the Binky Spurt!

http://www.bloomberg.com/news/articles/2016-10-05/gold-looks-25-overvalued-according-to-deutsche-bank-s-chief-global-strategist

And you can see why, with a chief global strategist like Binky, that Deutsche Bank is doing so well. Yep, time to sell any gold you might have.  Take that ring off your finger now and hawk it while it is still worth something.  After the Binky Spurt it will be too late. 

We'll see how this call works out for Binky.

10/7/16 Update

Since the initial post above, Binky seems right.  Gold has continued to drop, some economic news was pretty good and expectations of a Fed increase in rates were rising.  That is until today.  Today the BLS jobs number came in at 156K (below what the elite prognosticators were predicting) and the unemployment rate increased minimally to 5.0%.  So now the jury is out on what the Fed will do in December.

http://www.zerohedge.com/news/2016-10-07/payrolls-rise-156k-missing-expectations-unemployment-rate-rises-50

As one might expect, this is giving a bit of a bump to gold.

http://www.zerohedge.com/news/2016-10-07/gold-leads-bonds-bleed-jobs-miss-sends-rate-hike-odds-tumbling

Which may be due in part to our friends at Goldman saying that demand for gold remains high and intact, so a significant drop in gold prices seems unwarranted.

http://www.zerohedge.com/news/2016-10-07/golds-sharp-drop-strategic-buying-opportunity-goldman-sees-physical-demand-intact-ch

But I am sure Binky will stand firm in his convictions on this as the global economy is certainly ready for a spurt and all this other stuff is just noise. 

GDP Update

Back on August 9, I noted that the Atlanta Fed at their GDPNow site had given a preliminary forecast of third quarter GDP of 3.8% annualized.  I referred to it as Grossly Distorted Prediction and noted I would be surprised if the GDP was ultimately half that for the quarter, i.e. 1.9%.  Well, as of today, the Atlanta Fed is down to 2.4% and dropping fast.  They will continue to post third quarter numbers through October, so I might make my guesstimate after all.

https://www.frbatlanta.org/-/media/Documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

October 3 update

Now down to 2.2% after a dismal construction spending report today. 

October 7 update

2.1%

Gentelmen, Start Your . . . Lawsuits!

Well,  it was just a matter of time.  Tesla has been sued for a fatal crash in China allegedly involving its AutoPilot feature.

http://fortune.com/2016/09/15/tesla-autopilot-crash-china/

The lawsuit seeks very little monetarily and is reportedly designed primarily to just bring attention to the problems with the system.  Tesla claims there is no way to know if the AutoPilot was engaged due to the car being too damaged in the crash.  On the other hand, in the more recent fatal crash in the Netherlands, Tesla confirmed AutoPilot was not engaged and officials are not refuting it.

http://phys.org/news/2016-09-dutch-police-probe-fatal-tesla.html

Tesla agrees, however, that the fatal crash in Florida this year was with AutoPilot engaged, but asserts the driver was not using it properly.  Moreover, it claims to have now issued a software upgrade that eliminates the issue that resulted in that crash.

I have reported before on the likelihood of lawsuits over this.  Whether the China suit goes anywhere is anyone's guess.  Either way, others will follow.

I have read some commentators' views that lawsuits are not that likely as the legal liability is not that easy or cheap to prove.  Experts will be needed and will be expensive and state-of-the-art defenses may be available.  All true, but never underestimate the drive of the plaintiffs' bar or its resources.  Moreover, some expert will see the light and realize they can make a nice living testifying in these cases.

One might argue that different approaches being taken to autonomous cars provides plenty ammunition for an expert.  For example, Google is designing Level 4 cars with no steering wheel and no chance for human intervention.  It believes the interaction between a human driver and somewhat autonomous features can only lead to problems.  And just maybe Tesla is proving that to be true.

Now I understand that Tesla has plenty of warnings a driver has to go through to even engage AutoPilot, that the driver still has to touch the wheel occasionally, that they are regularly doing upgrades, yada, yada, yada . . . All these yadas probably add up to a nice defense against the driver of the Tesla who is injured or killed.  But what about the first time the Tesla plows into another car or people?  It will eventually happen.  Tesla will point the finger at the "driver" and the lawyers will point the finger at the deep pocket and the expert will say it is simply foolish to have the autonomous/human interaction as it creates too many variables.  Poof, there it is.  Mind you, these cars likely are safer than those with drivers in full control, but I still think Tesla is conducting a dangerous experiment.  No doubt in doing so they are collecting enormous amounts of data with which to tweak their software, which is perhaps enough economic incentive for Tesla to take this chance.  Only time will tell.

Show Me The Money

Now autonomous cars are coming whether you like it or not and some entities hope to make a lot of mullah off of them.  But there are several categories of companies where you have to scratch your head.  Car manufacturers, for example.  Sure, they will make these cars and sell them, but the obvious eventual plan here is that individuals will no longer own a car or at least no longer need to own one.  They will simply summon an autonomous car from Uber or Ford or whoever when they need it, specifying why they need it so an appropriate vehicle shows up.  They will then be taken to their destination and the car will proceed to its next pick-up.  Instead of sitting idle 95% of the time, the car will be in use the majority of time, perhaps getting maintenance and such during the slow nighttime shifts.  Overall, far fewer cars will be needed, perhaps only a third as many.

Let's conservatively assume the number of cars needed only goes down 50%.  Well, now you have 50% less for parts suppliers to supply, for manufacturers to build, for insurers to insure, etc.  Indeed, car retail will largely disappear as it will simply be large corporate fleets of autonomous vehicles serving the public, so say goodbye to your local car dealer.  That is a whole lot of missing jobs and dollars - and a whole lot of empty retail parking space that is no longer needed.

Let's say you are Ford.  Ford has indicated it is focusing on building autonomous cars for hire, not for private sale.  This makes a good bit of sense as it leaves control and upkeep of these sophisticated machines in the hands of a few companies that know what they are doing.  Now it is not clear to me if Ford is going to work with the likes of Uber or whether it may launch its own fleet.  The latter makes sense to me.

The approach of selling these autonomous cars to individuals seems financially unwise. The cars may cost more and have a higher per vehicle profit but if you are making half as many, your profits go down.  And liability - absent legislative intervention - is shifting largely to the manufacturer.  So you have lower sales profits with which to pay what will likely be enormous premiums for liability insurance.  Not per se a good business model.

So why not make your profit simply offering the cars you make for hire.  People sign up with Ford and get charged per trip.  Ford makes its money from this without ever selling a vehicle retail.  It has fewer factories to maintain, fewer workers to pay and a regular income stream moving people around.  Perhaps not the profits it is seeing from selling cars today, but it has to do something to fill the void that is coming.

And there will be voids for a lot of different businesses to fill if they can.  Any wonder that those national car insurers are now emphasizing in adds their other services like loans and such?  Perhaps they are seeing the writing on the wall.  After all, studies predict car insurance premiums are going to go down 60% over the next 15-20 years and 80% over the next 25.  We are talking about $200 billion in premiums, 80% of which might disappear in relatively short order.  Ouch!

http://www.latimes.com/business/la-fi-agenda-driverless-insurance-20160620-snap-story.html

These are interesting times my friends.  In an upcoming post I will endeavor to note some of the key benefits to autonomous cars beyond the safety benefits.  For example, that two car garage might make a nice playroom for the kids.