Davidson Investment Advisors bison logo

TRENDS 2023

This is a piece that the team at Davidson Investment Advisors puts together annually and is meant to provide some insight into exciting, disruptive, or otherwise new developments we anticipate being impactful to businesses, consumers and society.

ChatGPT

ChatGPT

A prototype artificial intelligence chatbot (ChatGPT) developed by OpenAI and released on November 30, 2022, has captured the imagination of the public and has provided a glimpse of what’s to come. OpenAI (an artificial intelligence research lab also responsible for DALL-E2 which interprets natural language inputs to create images of realistic objects) counts among its founders tech luminaries Elon Musk and Sam Altman.

In CAIS (Trends 2020), we discussed advances in machine learning and introduced the concept of comprehensive AI services. It may have seemed like a distant scenario that would emerge over time, but ChatGPT appears to be a step change. Perhaps, we’ll let ChatGPT speak for itself. Below is ChatGPT’s response to the query, “Write two paragraphs in journalistic style to describe ChatGPT and its future impact”:

ChatGPT
UnproductivePeople

Unproductive People

The US economy is currently at one of its lowest unemployment rates in history and has around ten million unfilled job positions according to the US Bureau of Labor Statistics; however, labor force participation rates remain historically low, and is at the lowest level ever recorded for prime-age males. Though perhaps exacerbated by the COVID pandemic, the trend was well-established prior to 2019 and may be associated with other trends suchas Great Resignation (Trends 2022) and Playing with FIRE (Trends 2019). What gives? Perhaps Tyler Childers got it right in his song Whitehouse Road, “Get me higher than my grocery bill.” Whether it be loneliness, lack of job skills, substance abuse or a combination of all three, there is a significant portion of the US population that has gone from forgotten, to unproductive, to becoming a serious drain on public resources. According to the Association of American Medical Colleges, 21.2 million Americans have a substance abuse disorder. The US Department of Health and Human Services estimates that 760,000 Americans have died of drug overdoses since 1999 and 10.1 million Americans over the age of 12 misused opioids in 2019. Relatedly, the homeless issue in many large US cities is only getting worse despite the billions of dollars being spent. According to the Hoover Institute, San Francisco alone is spending $852 million in its current budget year on homeless and supportive housing for its estimated 8,000 homeless people. That equates to $106,500 per homeless individual- this in a city that spends roughly $19,500 annually per student in its public schools. It simply is not sustainable. The US is facing a structural labor deficit despite a growing population, and those remaining in the workforce are not becoming more productive despite widespread use of technology. This lack of productivity appears more severe in the US, but it is a global issue. Whether it be work-from-anywhere (WFA Trends 2021), lying flat in China, or quiet quitting, the world needs to address this issue if it hopes for satisfactory economic growth going forward.

XR

XR

eXtended Reality (XR) is a catch-all term for technologies that enhance or replace our view of the world. This is often through overlaying or immersing computer text and graphics into real-world and virtual environments, or even a combination of both. XR encompasses augmented reality (AR), virtual reality (VR), and mixed reality (MR) – technologies we first introduced in Alternate Realities (Trends 2017). A central feature of all XR wearable devices is the ability to use visual input methods such as object, gesture, and gaze tracking to navigate the world and display context-sensitive information. However, XR devices vary based on the type of AR, VR, and MR experience and the complexity of use case that they are designed to enable.

Apple Inc.’s focus on AR/VR has ramped up over the past few years and will likely make the technology mainstream. As XR technology continues to advance, we expect it to play a crucial role in the development of the Metaverse (Trends 2022).

Scampocalypse

Scampocalypse

Financial fraud has always been a mainstay of society and economics. The first case of documented financial fraud dates back to 300 B.C. when a Greek merchant took out a large insurance policy on a cargo shipment of corn. The shifty merchant hatched a plan to keep his cargo of corn, sink his empty ship and receive the insurance money. Unfortunately for the merchant, the plan failed, and he drowned trying to escape his crew when they caught him in the act.

Financial fraud has continued to evolve with the economy and technology. The most notorious cases of corporate fraud in the previous generation were cases such as Worldcom, Enron and Bernie Madoff. Today, we have seen corporate fraud continue to evolve into cases such as WeWork, Theranos and most recently accusations of wide-spread fraud at cryptocurrency exchange FTX, which the Department of Justice referred to as the “fastest big corporate failure in American history.” While financial fraud is of course not new, what is alarming is that is getting much more costly.

According to the Federal Trade Commission, American consumers reported losing more than $5.8 billion to fraud in 2021, an increase of more than 70% from the prior year. Those figures don’t include reports of identity theft and other categories, so the actual number is undoubtedly higher. Part of the reason for this rapid increase in fraud is a result of not only fear and confusion because of the pandemic, but also imposter scams, which were the most prevalent form of fraud. Typically, scams in these categories cost victims $1,000 to $3,000.

An additional driver of financial fraud more recently has been how Digital Assets (Trends 2022) and technology has made it easy to move money quickly. Attackers are looking for the weakest link in the chain, and often a bank’s authentication controls are not worth the effort, so they attack the password or the persons themselves. In the case of cryptocurrency, one of the strongest cases advocates make for its utility value are its decentralized structure and transparency created by the blockchain (DeTrust Trend 2022), however, to date those attributes have not protected investors from significant levels of fraud. The trends in financial fraud are likely to continue, given the lack of regulatory oversight in opaque areas such as cryptocurrency, global interconnectedness, and the amount of personal information widely available on the internet that attackers can prey on.

The fraud cycle typically lags the financial cycle. As we are seeing the end of an era of zero interest rates and cheap money, more frauds are likely to be exposed. The timeless Warren Buffett quote still rings true, “A rising tide floats all boats… only when the tide goes out do you discover who’s been swimming naked.”